Demand for loans grows in Kenya despite rate hike

Saturday February 11 2023
Kenyans in a banking hall.

Kenyans in a banking hall. Kenya’s central bank interest rate hikes may have controlled inflation, but there is still a growing appetite for private sector credit. PHOTO | FILE | NMG


Kenya’s central bank interest rate hikes may have controlled inflation, but there is still a growing appetite for private sector credit.  The latest figures from the Kenya National Bureau of Statistics show that inflation peaked last October at 9.59 percent and relented to 8.98 percent in January 2023.

The Central Bank of Kenya (CBK) has raised its rate three times – from seven percent in May to 8.75 percent in November.

Projections from the International Monetary Fund (IMF) indicate that tighter monetary policy in the country and globally will enable a sustained slowdown in inflation rates despite the ongoing turbulence in eastern Europe.

But IMF’s Chief Economist Pierre-Olivier Gourinchas warns that there are still risks and “easing too early risks undoing all the gains achieved so far.” He is calling on central banks to keep their rates high.

Heeded IMF’s call

Kenya heeded IMF’s call, maintaining the rate at 8.75 percent in the latest review two weeks ago. The CBK argued that “the impact of the further tightening of monetary policy in November 2022 to anchor inflationary pressures was still transmitting in the economy.”


However, an expected growth in demand for credit by private sector could reverse the effect of the policy tightening that is meant to curtail appetite for loans.

Surveys by the CBK show that commercial banks expect loans to the private sector to grow by 11.1 percent by end of first quarter and by at least 12.8 percent by end of year.

“The majority (59 percent) of the banks expected private sector credit growth to be supported by increased credit demand following improved economic activity as businesses resume operations after the festive period, and as schools reopen for the new academic year,” CBK said in its Market Perceptions Survey report released last week.

Unchanged demand

CBK’s Credit Officer Survey also shows that despite the monetary tightening last year, the perceived demand for credit remained unchanged for the majority of economic sectors, and increased for personal and household, trade and manufacturing. Banks reported that all the factors affecting demand for credit – including the cost of credit and monetary policy measures – had no significant impact on Kenyans’ appetite for loans in the last two quarters of 2022.

Ken Gichinga, chief economist at Nairobi-based advisory firm Mentoria Economics, told The EastAfrican this week that Kenya has particularly been experiencing cost-push inflation “driven by supply shocks in food and fuel supply.”

Gichinga said that the growing appetite for loans among Kenyans will not necessarily reverse the slowdown in inflation rates, because the shocks have started to ease.