Central Bank to review interest rates capping, three months after ascending it to law

The regulator effected the law capping of interest rates for lenders in November last year, sparking a downsizing of bank staff in Kenya.

 

The bank held the rate at 10 percent at its last meeting in November. Banks, however, are not to charge a rate of four percent above the set limit.

During the meeting, the banking regulator stated that inflationary pressures were mild and speculated that the rate would remain within the government target range in the short term.

Altered monitory policy

CBK Governor Dr Patrick Njoroge had stated that the new banking law capping interest rates at four per cent above the Central Bank Rate had ‘complicated’ the monetary policy. Njoroge has, however, hinted that they would be monitoring how the new law is affecting the monetary policy.

Monetary policy involves the decisions and actions taken by the Central Bank to ensure that the supply of money in the economy is consistent with growth and price objectives set by the government. This is aimed at maintaining price stability in the economy.

The Central Bank’s monetary policy decisions are made to maintain a low and stable inflation rate over time, which is an indication of price stability.

Based on the prices of various consumer goods and services, which are evaluated and statistically represented in the Consumer Price Index (CPI), Inflation is determined.

IMF worries

The meeting comes in just a week after the International Monetary Fund (IMF) urged Kenya to reconsider its stand on the capping of interest rates. Already the banking industry has been facing the heat of the move by the parliament September last year, with massive loss of jobs amongst staff.

The IMF earlier had warned that Kenya faces a stunt in economic growth, should the capping of interest rate law apply. Many banks have been cashing in on interest charged on loans, boosting the banking business in the country.

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