Central Bank

James Mwangi calls for total scrapping of interest rates cap

Mr Mwangi at a media and investors briefing Thursday opposed a plan to modify them as has been suggested.

“You can’t sustain a growth rate of five per cent if credit to the private sector is growing at two per cent. Eventually three years down the road if we retain the capping the economy will not grow above two per cent,” said Mr Mwangi.

The Treasury and the Central Bank of Kenya (CBK) has appeared to favour a modification and not total scrapping of the controls, citing the need to keep the cost of loans affordable to households and businesses.

The caps were imposed after negotiations with banks failed to lower the cost of loans for decades, with interest rates nearly hitting 30 per cent.

The CBK on Tuesday said interest rate caps have undermined the conduct of monetary policy.

“There will be a very big bonus on the economy if the interest cap is removed because the latent power in the banking industry will be released to the private sector,” said Mr Mwangi.

Consumer lobbies have warned that scrapping the controls altogether may not be the solution, and may in fact lead the country back to the era of high rates whose consumer outcry prompted the controls in the first place.

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