(Adds details, analysts)
By Duncan Miriri
NAIROBI, Sept 20 Kenya's central bank
unexpectedly cut its benchmark interest rate by 50
basis points on Tuesday, moving to try to spur credit growth
just a week after commercial banks' lending rates were capped by
The Bank's monetary policy committee (MPC) said economic
conditions supported the reduction, to 10.0 percent, noting
inflation was within the government's preferred band of 2.5-7.5
percent and the local shilling was stable while hard
currency reserves had jumped.
"The committee remains concerned about the persistent
slowdown in private sector credit growth," it said in a
The bill capping commercial loan rates at 400 basis points
above the benchmark rate, strongly opposed by banks which said
it would eat into their margins, was signed into law on Aug. 24,
sending lenders' shares sharply lower.
It came into effect in mid-September, and all 12 economists
and analysts polled by Reuters forecast the central bank would
hold rates on Tuesday to give the law time to take effect.
Razia Khan, head of research for Africa at Standard
Chartered in London, said the cut might benefit borrowers with
existing loans, but could further dampen commercial lending.
"Banks are likely to cut back on new lending in response to
the inability to price for risk," she said.
The MPC, which did not provide private sector credit growth
data, said an expected narrowing of the current account deficit
to 5.5 percent of GDP this year from 6.8 percent in 2015 also
supported the cut.
The central bank had cut rates by 100 basis points in May.
The government expects the economy to grow by 6 percent this
year, up from 5.6 percent last year.
(editing by John Stonestreet)