Interest on savings and long -term deposits rose in January, the first appreciation since the onset of the Covid-19 pandemic signifying a more upbeat and resilient economy.
Data released by the Central Bank of Kenya (CBK) show that deposit rate rose to 6.31 per cent having fallen to an eight-year low of 6.3 per cent in December.
The average return offered by banks on short-term savers also rose marginally to 2.73 per cent from a five-year low of 2.7 in December.
The rise in deposits and savings rate indicates that the economy is on a recovery path as banks increase their demand for cash for onward lending.
“Generally, a decrease in the rate shows decreased appetite for the banks to mobilise funding for onward lending,” said Kenya Bankers Association chief executive Habil Olaka.
“When demand for loans is not high, banks prefer not to keep deposits that they are not going to lend, but when loan uptake improves, the ripple effect is that banks will offer more returns for savings.”
Despite the marginal rise however, the rates remain low compared to other money market investment alternatives.
The rate has also been lower than the inflation since 2017, meaning the real value of cash saved is being eroded over time.
The low deposit rates also mean that banks are enjoying a large margin on the cost of funds when lending to customers.
Since the removal of the rate cap law which pegged both the lending and deposit rates on the Central Bank Rate, the deposit rate has fallen by a bigger margin compared to the charges on loans.
