Interest rates play an important role in not only the economy, CBK will either raise or lower rates depending on how the economy is performing.
Interest rates increase in an effort to make borrowing money less-attractive and slow a rapidly growing economy. This is done because excessive growth and business expansion can lead to increased inflation. On the other hand, when the economy weakens, the Fed may decide lower interest rates. Lowering the rate will make money flow more freely and hopefully stimulate economic growth.

My Question is Kenya is projected to grow at 6% this year, the stock market(and the whole financial market in general) has been doing well on the rebound, so why lower the interest rates of banks?

No. 2, How does one position himself to take advantage of this falling rates especially at the NSE? do i move to the financial counters?

No. 3, Mortgage and savings accounts - any benefits?

@mufasa. It seems CBK is lowering short term rates bringing them closer to the inflation rate and long term rates to lower lending rates. You just have to look at Equity bank results to see that banks are benefiting from this (at least those retail ones). So moving into equity and financial counters will be a good idea to take advantage of falling rates.

Not only was the Fed lowering interest rates but paying interest on reserves to keep money from entering the banking system. The Kenyan Treasury is doing the same thing...most of funds are in govt deposits at CBK. But releasing the money into the economy may lower interest rates further, but stoke inflation if banks lend it. However, there are some banks who'd rather lend to the govt than risk lending to us. Fixed income securities may suck but banks prefer them to lending right now.

I don't see much benefit from mortgage or savings...try commercial papers, some guys at Dry Associates were trying to convince me, pretty good rates.

Lower interest rate will act as a catalyst for expansion as people will now be in a position to borrow more from the banks and other lending institutions in the financial markets,however for the stock market,due to the lower interest rates,there will be more money in circulation which will in effect determine the spending and investment habits of Kenya,these will however make the stock market an attractive avenue for investments.

True imported inflation is a big factor, particularly since the World Bank expects Kenya's food security to worsen temporarily. But what about the inflation we export to Uganda. If Kenyan inflation was 20% in 2008 and now below 5% in 2010 does that mean there has been a corresponding change in the inflation exported to Uganda through trade. Probably not...

What is the difference between inflation on the ground and inflation statistics? so that means that all players must apply the same standards, so they can perceive inflation uniformly.

Interestingly what Kenya has done is change our perception of inflation...which has been reciprocated in Uganda and Tanzania (being implemented in Uganda and Tanzania right now between November 2009 and May 2010). Like this is a coordinated effort amongst the EA countries (backed by IMF) to promote a low interest rate regime regionally.

Indeed lower interest will be the catalyst for expansion if it's spent into circulation, but the govt is building its deposits and commercial banks would rather bid down auctions to get hold of govt paper...they're not taking the risk on Kenyans. So the current interest rate regime would seem more related to inflation targeting rather than for stimulus.

Equities is the place to be although the HFCK/Equity connection will operate as well as S&L/KCB connection...so generally buy banks with cost leadership advantage, Barclays, Equity, KCB.

I think there will be some positive effect. How big the effect depends on what are the current factors that affect borrowing in kenya coz i know consumer and investor confidence and expectations concerning the economy plays a big part and i know with the current political situation where (as always) there's noise investors will not be very confident just borrowing and pouring money. Then we must also ask ourselves how many Kenyans consume on bank credit as opposed to doing belt tightening. But having said that the effect may be felt even with the banks opting for the debt market coz unless the government increases its borrowing through bonds and bills, the financial institutions by rushing there will 'crowd' themselves out na watarudi kwa wanjiku tu. N when they kam back there will be a considerable effect on the stock market coz 1) the stock market is, compared to many other markets, a fairly liquid one and
2) the stock market happens to be one of the most widely known avenue of 'investment' known by kenyans (hata wazee wanajua shares And this coupled with the current rally coz am pretty sure the buzz has filtered down to common folk). However the lowering of the rates begs the question of how fast the effects will be felt in the economy. By the way does the cbk run a completely floating exchange rate system ama its a managed one?