Kenya: CBK Could Soon Abolish 18-Month Old Law On Interest Rates Capping

Apr 04, 2018 | The EastAfrican; All Africa

Kenya's 18-month-old cap on commercial interest rates could be repealed in the next two months as it emerged that it may have cut last year's estimated economic growth rate by 0.4 percentage points, and starved small and medium enterprises of cash.

Last week, Central Bank of Kenya (CBK) Governor Patrick Njoroge said that the law could be repealed as early as June, in a bid to rejuvenate the country's credit sector which has recorded a slowdown. The rate cap law was passed in August 2016 in response to the high cost of credit. "We will be talking to all the stakeholders, including parliament and the bankers. The pointers will be on how this law will be amended or repealed. We are doing this in our interest as a country," said Dr Njoroge. The EastAfrican understands that several consultative meetings between bankers, legislators and government officials have suggested tweaking the law on both the deposit and interest rate as they seek to have a win-win scenario for both the banking sector and customers. The main point of discussion has so far been on the deposit rate, where legislators in the Parliamentary Budget Office are said to have agreed to have it as the first point of review. Last week's Monetary Policy Committee (MPC) decision to lower the CBR by 50 basis points was also viewed as a market test, as this cut the deposit rate too. "The removal of the floor on deposit rates would allow banks to negotiate with their customers. This will also give the banking regulator some wiggle room. We have come to a situation where we all agree we will have some sort of regulation but one that allows flexibility," said head of the parliamentary budget committee Kimani Ichung'wah. t is understood that one of the suggestions that the legislators are toying with is to reduce the base rate on deposits from the current 70 per cent to below 50 per cent so as to give banks room to price their risk. On the other hand, Treasury, which is caught in catch 22 situation, given the rise in the volumes of banks participation in its papers vis-a-vis the private sector credit crunch, is keen to have this rate not go beyond 30 per cent. Read more on All Africa. Source: All Africa