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The Central Bank of Kenya (CBK) has lowered its benchmark interest rate by 50 basis points to 10 per cent as the outlook on inflation moderated over the short term, Patrick Njoroge, the CBK’s governor, said in a statement released after the bank’s Monetary Policy Committee meeting on Tuesday.

“The Committee observed that demand pressure on inflation are moderate and inflation is expected to decline in the short term, but the Committee remains concerned about the persistent slowdown in private sector credit growth,” Njoroge said.

Kenya’s inflation rate decreased to 6.3 per cent in August from 6.4 per cent recorded in the previous month due to a decline in food inflation. The inflation rate has remained within the CBK’s target rate of 7.5 per cent since February this year.

Last month, President Uhuru Kenyatta signed a controversial law that capped commercial lending rates at 4 percentage points above the CBK’s benchmark rate. However, the CBK has sharply criticized the new law, stating that it would be ineffective and harmful to the economy.

“The MPC noted the coming into force of the Banking (Amendment) Act, 2016, on September 14, 2016,” Njoroge said. “The CBK is closely monitoring the impact of the new law on monetary policy and on the overall economy. The CBK will continue to put in place measures to sustainably reduce the cost of credit and improve liquidity management.”

The CBK said its foreign reserves currently stand at $7.803 billion (5.2 months of import cover) compared with $7.769 billion (5.1 months of import cover) at the end of July. The apex bank also said Kenya’s current account deficit is expected to narrow to 5.5 per cent of GDP in 2016, from 6.8 per cent last year.