Capping Bank Lending Rates Harmful to Economy – Central Bank

The Central Bank of Kenya bank has opposed moves by the National Assembly to capping commercial banks’ lending rates at 4 percentage points above its benchmark rate.

Governor Patrick Njoroge said the move will be harmful to the economy and ineffective as they project Kenya’s inflation to fall further in coming months.

Speaking at a press conference on Wednesday, Njoroge cited a fairly performing economy. “For us, 2016 will be the year of transition while we make long term bets.”

CBK’s benchmark rate is now 11.50 percent. Njoroge urges banks to lower rates as it sets to publish the Q1 lending rates charged by commercial banks in the coming weeks.

The average lending rates are currently at 18.2%, which is 6.7% above the Central Bank Rate.

Interest Rate in Kenya averaged 14.29 percent from 1991 until 2016, reaching an all-time high of 84.67 percent in July of 1993 and a record low of 0.83 percent in September of 2003 according to Trading Economics.

Cytonn Investments on the other hand when releasing the FY’2015 Banking Report noted that they expect the economy to remain within the CBK target rising in September when additional VAT on petroleum is introduced. The Analysts are positive on a stable macroeconomic environment and tea exports improving for the year.