Lending rates decline despite reversal in Bill yields

• Prime rate fell to 11.42% last week while rate for other customers also followed suit below 14% ending January
• All eyes now on upcoming policy meeting on March 26 to see if Central Bank would end the policy pause  

The market lending rates have continued their downward path. This is a sign that the previous monetary easing measures have more room to run their course as the prime lending rate continued to decline through last week despite the rise in bill rates which occurred after 
almost 6 months.
While the average prime rate, the benchmark rate used by banks to price short term loans for their most prime customers, declined 8 basis points (bps) last week to end the week at 
11.42 percent.

This marked the lowest from about two years ago in the week ended in April 22, 2022 when the rate was at 14.20 percent as lending rates set off to a months-long ascent in response to the 700bps, bumper policy rate hike on April 8 that year.
In that cycle, the rate peaked at 29.67 percent in November before starting to ease.

After pivoting to cut rates from June last year onwards, the Central Bank had delivered a cumulative 650bps of rate cuts through November while instituting several other targeted measures to bring market lending rates to adjust downwards to levels close to the policy rates.
After cutting rates by 100bps in November to 9.00 and 10.0 percent levels, the Central Bank said they would hold off further policy easing to give time and space for market lending rates to adjust downwards as they saw more room for rates and yields to come down.

Since November, the average prime rate has come down by 172bps, and year-to-date it has come down by 68bps.
While treasury bill yields were believed to have been bottomed out with the rise in yields by between 3 and 9 bps across the three tenors last week, it is yet to be seen if the prime rate has bottomed or it has more 
room downwards.

Traders and investors are now watching the next Monetary Policy Board meeting scheduled for March 26 to see if the rate setting committee will cut rates further to drive the yields and the lending rates down as inflation appears to be settling around their medium term target of 5 percent with the absence of any exogenous factors disturbing the trend.

Meanwhile, lending rate to other customers such as small and medium sized businesses and individuals were also seen easing recently. According to latest data available through the end of January, the average weighted new lending rate has come down to 13.91 percent from 14.38 percent in December 2023 and 25.82 percent in January 
last year.