East Africa: EAC Central Banks Hold Lending Rates Stable to Boost Growth
East Africa's central banks have voted to keep their policy lending rates low or unchanged to help bolster their economies, amid uncertainty and weaker global growth prospects.
Rwanda, Tanzania, Kenya and Uganda have maintained their benchmark lending rates to commercial banks at 5.5 per cent, seven per cent, nine per cent and 10 per cent respectively, to promote increased spending by firms and households and boost economic growth.
But Kenya, which has capped its interest rates, faces difficult task of unlocking credit to the private sector, after banks indicated that the capping legislation and their resultant inability to effectively price risk would continue stifling the supply of credit. Kenya's Banking Survey for January 2019 released a week ago shows that lenders will continue channelling their funds to corporates and lower-risk investments in government securities.
Central Bank Governor Patrick Njoroge said the rate cap has weakened the effectiveness of the Bank's monetary policy transmission mechanism and that it now takes longer for macroeconomic indicators such as inflation to respond to changes in the Central Bank Rate (CBR).
Kenya has set its lending rates at four percentage points above the CBR, and even though banks have been quick to adjust their lending rates in response to central bank's signal, they have refused to lend to households and small and medium-sized enterprises, whom they consider high risk borrowers. Read more from All Africa.
Source: All Africa