Treasury secretary Henry Rotich yesterday said the government is mulling reviewing the caps in the wake of a sharp decline in credit growth.
The benchmark rate has remained unchanged at 10 per cent since last September, effectively pricing lending rates at a maximum of 14 per cent.
Lending to businesses and individuals grew a paltry 4.3 per cent in the year to December, down from a 20.6 per cent a year earlier, making it the slowest growth in more than 10 years.
The Central Bank of Kenya (CBK) has held the base lending rate at 10 per cent, offering relief to millions of borrowers.
The bank’s Monetary Policy Committee (MPC) retained the benchmark rate despite inflation hitting a four-year high, saying the cost of living measure was driven by a temporary shortage of food and not cash supply.
The committee chairman and Central Bank governor Patrick Njoroge cited a stable forex market, a narrower current account deficit and enough foreign currency reserve to cushion the economy from unforeseen shocks as reasons for holding the base rate unchanged.
The benchmark rate has remained unchanged at 10 per cent since last September, effectively pricing lending rates at a maximum of 14 per cent in line with the capping of interest rates at four percentage points above the Central Bank Rate (CBR).
“The committee remains concerned about the prevailing uncertainties, including the impact of the interest rate caps on the effectiveness of monetary policy,” said Dr Njoroge in a statement.
Treasury secretary Henry Rotich yesterday said the government is mulling reviewing the caps in the wake of a sharp decline in credit growth.
“We are monitoring the situation very closely. This will inform our next course of action, including reviewing the caps if that’s necessary,” said Mr Rotich in a separate event.
Treasury, however, said the interest rate controls are not entirely to blame for the credit squeeze, saying the decline had hit banks across East Africa.
“There was already an underlying decline in credit extension to private sector even before the imposition of the controls in September,” the Treasury said.
Lending to businesses and individuals grew a paltry 4.3 per cent in the year to December, down from a 20.6 per cent a year earlier, making it the slowest growth in more than 10 years.
