Kenya’s central bank held its benchmark lending rate at 9.0 percent on Wednesday, saying inflation expectations remain within the target range.
It was the fourth consecutive decision by the bank to keep rates on hold since September.
Year-on-year inflation was down to 4.14 percent in February from 4.7 percent a month earlier, staying within the government’s preferred band of 2.5-7.5 percent.
“The (Monetary Policy) Committee noted that inflation expectations remained well anchored within the target range, and that the economy was operating close to its potential,” the bank said in a statement.
In January, the bank said the economy was expected to expand by 6.3 percent this year, up from an estimated 6.1 percent in 2018, driven by an expansion in agriculture and services.
The bank said it estimated the current account deficit to be 4.8 percent of gross domestic product this year, down from an estimated 4.9 percent of GDP in 2018, due to lower food and machinery imports.
Lawmakers capped commercial lending rates at 4 percentage points above the benchmark in late 2016, saying they were concerned about their high levels.
But that has led to a private credit squeeze, as banks say it forced them to cut back on loans to high-risk groups.
Private sector credit grew by 3.4 percent in the 12 months to February, compared to 3.0 percent in January, the central bank added in its statement.
In mid-March, a Kenyan court ruled that the cap was unconstitutional, but judges suspended the decision for 12 months to allow parliament to re-examine the law.
“The Committee stressed that interest rate caps severely constrain the formulation, conduct and effectiveness of monetary policy,” the bank statement said.
“Further, these interest rate caps have hampered access to credit by growth sectors, particularly MSMEs,” it added, referring to small and medium businesses.