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CBK Governor Terms Rate Cap as ‘Temporary Deviation’, Legislators Reject its Repeal

The Monetary Policy Committee (MPC) will closely monitor the impact of the policy measures, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary to support the economy hit by the COVID-19 pandemic.

Patrick Njoroge Photographer: Luis Tato/Bloomberg

Dr. Patrick Njoroge, Kenya’s Central Bank governor has maintained that caps on commercial lending rates would eventually be removed, terming them a ‘temporary deviation’ even as Members of Parliament on Wednesday opposed repealing sections of the Banking (Amendment) Bill 2019.

“This is only a matter of time,” said Dr. Njoroge at the Renaissance Capital’s 5th Annual East Africa Investor Conference held in Nairobi.

“Our view is, do not get fixated with interest rate caps. Be assured that with time, as soon as possible, that will be removed…in general terms, that is a temporary deviation,” he added.

In March, the Kenyan High Court gave the National Assembly one year to amend the anomalies in the Banking (Amendment) Act 2016 in a ruling that declared Section 33B (1) and (2) of the Banking Act unconstitutional or revert to free-floating interest regime.

 

The amendment bill sponsored by Kiambu Town Member of Parliament Jude Njomo is now in its second reading, as parliament seeks to clarify wordings in the Banking (Amendment) Act of 2016.

The Kenya Bankers Association (KBA) State of Banking Industry Report 2019, shows interest rate caps prompted adjustments that saw banks shift from riskier segments to investments that balance returns and asset quality.

The Banking (Amendment) Act, 2016 that introduced caps on lending rates have seen the market:

(i) gradually shift away from segments considered riskier

(ii) seek to optimise on investments that balance returns and asset quality

(iii) respond to both risks and returns balance depending on liquidity positions, which in themselves are a function of the size of the bank and chosen market segment.

The current central bank rate (CBR) has been placed at 9.00% ahead of the upcoming MPC meeting scheduled for Monday 23rd September 2019.

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