This formula was developed as an outcome of discussions between the stakeholders, CBK and lead by The National Treasury as a measure to bring down the cost of borrowing in the country.
Among others, the new pricing tool gives an opening for customers with a good credit rating to obtain better pricing of their loans from banks compared to those with high risks.
"This framework is expected to enhance the transmission of monetary policy signals through commercial banks' lending rates. It will be computed as an average of the CBR and the weighted 2-month moving average of the 91-day Treasury bill rates,"
"The new banks' base lending rate will next be reviewed in January next year "if conditions do not drastically change."
Previously, the banks used the Central Bank Rate (CBR) to peg their interest rates, which despite the CBR coming down have remained up.
Banks' margins on top of the given rate will also depend on the cost of funding and cost of operations, raising questions as to how the new rate will lower lending rates which stand at an average rate of 21 percent.
But according to Treasury Cabinet Secretary
"All these measures have to be done in tandem to achieve what we want. These things cannot just happen by magic," Rotich commented on Tuesday during a different meeting at the Treasury.
Meanwhile, CBK has maintained its lending rate to banks for the 7th time in a row at 8.50 percent, citing stability in inflation and exchange rate.
"The CBK will continue to monitor the key macroeconomic aggregates and any emergent risks from the external and domestic economies that may impact on price stability," Ndung'u said.
The entry into the international capital markets through issuance of a Sovereign Bond has boosted
CBK says this will help to benchmark the country's credit and facilitate access to international capital markets by corporate entities thereby enhancing investment.
"We are really focused in reducing domestic borrowing through things like treasury bills and that is why we went this route of the Euro Bond," Rotich said.
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