The Central Bank Rate, CBR, is the interest rate set by the central bank, which influences all other interest rates in the economy.
This is the rate at which the Central Bank of Kenya (CBK) lends money to commercial banks.
It is a key tool used by central banks to control the money supply in the economy. A change in the CBR can have a significant impact on the interest rates charged by commercial banks, which in turn affects borrowing and spending by businesses and consumers.
A higher CBR can reduce inflation but may slow economic growth, while a lower CBR can boost economic growth but may increase inflation.
CBR and the Central Bank
The Central Bank of Kenya uses the CBR as a monetary policy tool to achieve its objectives, which include controlling inflation, stabilizing the currency, and promoting economic growth.
By changing the CBR, the Central Bank can influence the cost of borrowingThe cost of borrowing refers to the total expenses that a borrower incurs when taking out a loan or using credit. This cost is not just the interest r... and spending in the economy, which can help to achieve these objectives.
When the Central Bank raises the CBR, it becomes more expensive for commercial banks to borrow money from the Central Bank.
This, in turn, leads to an increase in interest rates charged to businesses and consumers by commercial banks. Higher interest rates can reduce borrowing and spending in the economy, which can help to control inflation.
Conversely, when the Central Bank lowers the CBR, it becomes cheaper for commercial banks to borrow money from the Central Bank.
This results in lower interest rates being charged to businesses and consumers by commercial banks. Lower interest rates can stimulate borrowing and spending in the economy, which can help to promote economic growth.
