“The July 2010 price data from KNBS (Kenya National Bureau of Statistics) showed inflation to be 3.6 percent relative to 3.5 percent and 3.9 percent in June and May 2010,” the central bank’s Monetary Policy Committee (MPC) said in a statement.

Central bank Governor Njuguna Ndung’u told a regular news conference the MPC was worried about the high level of commercial bank lending rates. The central bank cut its lending rate by 75 basis points in late July to six percent.

“Despite reduction in lending rates … there is scope for banks to lower rates. We are quite concerned about this,” he said.

While the central bank has made seven cuts totalling three percent to its lending rate since it began a cycle of easing in December 2008, commercial banks have not followed.

The central bank has been repeatedly urging commercial banks to lower their lending rates which have remained stubbornly high above 14 percent.

Gross loans increased by 30 billion shillings ($373.8m) between April and June 2010 to 828 billion shillings, with more than a quarter taken on by the manufacturing sector, the MPC said.

Domestic credit grew by 26.6 percent in the first half of 2010.

Ndung’u said credit growth in the second quarter of 2010 was almost double that of the similar period in 2009.

Since September 2009, the average lending rate from banks has fallen by less than one percent, while deposit rates have decreased more sharply.