SMEs set to benefit as interbank rates drop
Business
By
Gerard Nyele
| Jun 19, 2024
A trader displays sukuma wiki at Kisii Municipal market. [Sammy Omingo, Standard]
Small and medium enterprises (SMEs) are set to benefit from reduced borrowing costs following a decline in interbank lending rates to a six-month low of 12.922 per cent.
Central Bank of Kenya (CBK) initiatives are expected to lower commercial bank rates.
Financial analyst Peter Macharia, CEO of Jijenge Credit, noted, "A falling interbank lending rate indicates that it is becoming easier to borrow money," suggesting increased economic activity.
Interbank rates, governing short-term loans between banks, are crucial for liquidity management and regulatory compliance.
READ MORE
The missing billions: Unraveling the mystery of Kenya's 2014 Eurobond scandal
Inside Sabina Chege's breastfeeding Bill
MPs pass Bill requiring workplace breastfeeding facilities
'The talent exists': Maingi calls for grassroots sports funding
How Endebess hospital could bring medical care closer to residents
46 tonnes of smuggled sugar seized in Turkana
More protest claims worth Sh83.65m processed
State pledges to enact Older Persons Bill by 2027
Government says Older Persons Bill 2024 to be enacted before 2027
A rise indicates tighter borrowing conditions, potentially slowing business operations.
"When you borrow money from a bank today, the interbank lending rate formula may impact your interest rate," explained Macharia.
The move follows the CBK's new policy framework aiming to ensure lower lending rates benefit borrowers.
The revised framework aligns interbank rates closer to the central bank rate (CBR) of 13 per cent, reducing the previous 2.5 per cent differential.
"The market for interest rate-based products is expected to become more effective," he said.
Businesses reliant on debt financing may adjust growth strategies in response.
Macharia said borrowing costs could decrease, with banks possibly using the CBK's emergency overnight facility if unable to borrow interbank.