Kenya Banks’ Reference Rate (KBRR)
The Kenya Banks’ Reference Rate (KBRR) was introduced as a uniform base lending rate across the banking sector to enable consumers compare the pricing of loan products in July 2014. Publication of information on interest rates for the banking sector was therefore expected to increase transparency, competition, enhance credit access and lower the overall cost of credit to borrowers.
Determination of level of KBRR
- KBRR is computed as an average of the Central Bank Rate (CBR) and the two-month weighted moving average of the 91-day Treasury bill rate.
- The Central Bank of Kenya, through the Monetary Policy Committee, reviews the KBRR every six months. The past and current levels of the KBRR are:
- 8th July 2014 – 9.13 percent
- 14th January 2015 – 8.54 percent
- 7th July 2015 – 9.87 percent
- 25th July 2016 – 8.90 percent
- KBRR is the interest rate a bank charges on riskless lending.
- Bank loans will be offered at an interest rate of KBRR + “K”.
- “K” is the premium levied by banks above KBRR and should cover the identified loan-associated risks. The premium “K” could be negative, for instance, in the event that the lender perceives advantages to being associated with a particular borrower.
- Banks are required to disclose to their customers the composition of “K”.
Central Bank Rate (CBR)
Section 36 (4) of the Central Bank of Kenya Act stipulates that the Central Bank shall publish the lowest rate of interest it charges on loans to banks and that rate shall be known as the Central Bank Rate (CBR).
The level of the CBR is reviewed and announced by the Monetary Policy Committee (MPC) at least every two months and its movements, both in direction and magnitude, signals the monetary policy stance. The CBR is the base for all monetary policy operations in order to enhance clarity and certainty in monetary policy implementation.
The past and current levels of the CBR are: