CBK sets growth at 6pc amid interest rate law concerns

Monday January 29 2018

A busy section of the Nairobi central business

A busy section of the Nairobi central business district. Central Bank says the interest rate cap is holding back economic growth. FILE PHOTO | NATION 

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Kenya’s economy is forecast to grow from around five per cent in 2017 to 6.2 per cent this year. However, Central Bank Governor says the interest rate cap is holding it back.

The projected growth for 2018 is 0.7 per cent higher than the World Bank’s forecast of 5.5 per cent, but is within the Treasury’s estimate of above six per cent.

At a press briefing after the Monetary Policy Committee meeting last week, Central Bank of Kenya Governor Patrick Njoroge said the country’s economic growth would be boosted by positive fiscal policy, review of interest rate cap law (which will strengthen the banking sector), commencement of direct flights to the US and ease of doing business.

The CBK wants a repeal of the law capping interest rates, which it says is having a negative effect on the economy. According to Dr Njoroge, the controls have resulted in a credit crunch as banks ration credit, slowing down the economy.

“The interest rate caps have been acting as a brake to the economy.... This is something we need to deal with so as to support rather than inhibit economic dynamism,” said Dr Njoroge.

Shrinking credit