Members of Parliament last week confronted Central Bank Governor Patrick Njoroge accusing him of being in an unholy alliance with commercial banks to have the law capping interest rates repealed.
The MPs also claimed that the CBK had failed to enforce the law as it was intended, choosing instead to listen to the International Monetary Fund and the banks on how to frustrate the controlled rates regime.
Both sides, of course, have a big say in settling the interest rates debate. The MPs reserve an important role in any legislative process that will see the law capping interest rates repealed or retained.
The CBK, as the regulator, constantly monitors the financial environment, including how the lending graph is moving, and may point to some solid data to back its position.
But each side should approach the debate with an open mind. The overriding objective should be to improve the health of the economy.
A number of economists and bankers have in the past warned that interest controls would especially hurt small businesses, as banks restrict lending to them in favour of government treasuries.
The prediction has turned out to be largely correct, with reports indicating a slowdown in private sector lending and a steep rise in the share of the government’s domestic debt held by banks.
There are genuine concerns that rates capping could be hurting the economy. But the Treasury and the CBK need to encourage honest debate around the law and communicate the situation better to the MPs and its other proponents.
They should not be seen to be pushing for its repeal only due to pressure from international lenders like the IMF.
MPs should also take time and listen to the other parties, instead of firing on all cylinders against the repeal even when the new state of affairs hurts business, jobs creation, and economic growth. Let reason prevail.