Kenya: Parliamentary Budget Committee says its Considering Amending Rate Cap Law

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The chairman of the parliamentary budget committee announced on Monday that there was a case before it regarding the amendment of the cap on commercial lending rates. The International Monetary Fund (IMF) has blamed the rate cap on slow credit growth in the private sector. Kimani Ichung’wa also said the elimination of deposit rates floor would enable banks to negotiate with their customers.

The government capped bank interest rates at four percent above the Central Bank’s benchmark rate in 2016. A minimum deposit rate of 70 percent of the policy rate was also set. The policy rate stands at 10 percent.

As a result, the cap forced banks to stop lending to high-risk customers which in turn has caused slow credit growth in the private sector.

The central bank was against the caps before they were implemented and the IMF has asked the government to eliminate them.

[…] It allows the central bank to have some flexibility in terms of monetary policy, Ichung’wa said.

Ichung’wa said lawmakers, the treasury, and banks were looking into the possible solutions for the rate caps. He added that while solutions were being sought out, the protection of public interest should not be ignored.

“Can [banks] be trusted to self-regulate? I don’t think they can because they are profit-motivated,” he said, adding that the current lending rates would probably remain.

“We must come to a situation where we all agree we will have some sort of regulation but one that allows flexibility.”

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The budget committee chairman also said that lawmakers were not concerned by Kenya’s debt which is hit 50 percent of the GDP since 2013. He said that as long as it remained below 74 percent, there was no need to panic.

“We are within acceptable thresholds. The country is still capable of settling all its debts when they are due so we should be ok,” he said.

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