Equity Group has announced an increase in its lending rates, effective from July 10, following the Central Bank’s decision to raise its benchmark lending rate to commercial banks by 100 basis points to 10.5 percent on June 26.
In a recent public notice, the regional lender, operating in Kenya, Uganda, Tanzania, Rwanda, and the Democratic Republic of Congo, stated that the adjustment in interest rates is designed to align with the lender’s revised reference rate of 14.69 percent, plus a margin based on the customer’s risk profile. These revised rates will be applicable to both existing and new borrowers with loans denominated in Kenyan shillings.
The Central Bank of Kenya (CBK) increased its policy rate to 10.5 percent in an effort to combat inflationary pressures caused by rising food and fuel prices. June’s overall inflation remained high at 7.9 percent, primarily driven by increases in food, fuel, and electricity prices, as reported by the Kenya National Bureau of Statistics. May’s inflation rate stood at eight percent.
However, the rise in interest rates is expected to lead to a surge in loan defaults in the banking sector and hinder credit access for productive sectors of the economy. Private sector credit growth has remained unchanged at 13.2 percent in April and May of this year.
The central bank anticipates that overall inflation will remain elevated in the near future due to recent increases in electricity prices, the removal of fuel subsidies, and associated second-round effects.
The National Treasury has already communicated with the CBK, setting the inflation target for the 2023/24 fiscal year at five percent, with a flexible margin of 2.5 percent on either side to account for adverse shocks.
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