CBK Governor to seek removal of cap on commercial lending rates
- There were some concerns about the effect a new 8 percent value-added tax on fuel will have on inflation,but Njoroge predicted it would remain within the government's preferred band of 2.5 to 7.5 percent.
- He however stated he would keep engaging with lawmakers to seek a removal of a cap on commercial lending rates which he said were "strangling" the economy.
CBK Governor Patrick Njoroge has said he will keep engaging with lawmakers to seek a removal of a cap on commercial lending rates which are “strangling” the economy.
The cap, at four percentage points above the central bank’s policy rate, was imposed in September 2016.
“The small enterprises and other people that are probably lower in terms of income, income per capita and things like that, they are the ones that are hit the hardest by this interest rate cap,” Njoroge said.
An attempt by Finance Minister Henry Rotich to repeal the cap in June was blocked by lawmakers last month.
The rate cap was designed to help small traders access capital at affordable rates, but has had the opposite effect.
Banks said they cannot price risk to small and medium enterprises (SMEs) properly while the cap is in place.
Lending to the private sector in East Africa’s richest economy per capita fell to 2.4 percent last year from 9.3 percent in 2016.
It has since partly recovered to 4.3 percent in the year to last month, the central bank said, adding it was likely to rise later in the year.
There were some concerns about the effect a new 8 percent value-added tax on fuel will have on inflation, but Njoroge predicted it would remain within the government’s preferred band of 2.5 to 7.5 percent.
Policymakers held the benchmark lending rate at 9.0 percent on Tuesday, citing the potential impact of the tax on the costs of transport, goods and services.
Kenya imposed VAT on fuel earlier this month. Year-on-year inflation stood at 4.04 percent last month and the governor said the rate would go up this month, but remain within the target band.
“Even if this full impact goes through, we will still remain within, unless there are other things to add, all things held constant, we will remain within the target band,” Njoroge said.
He said economic growth was expected to be stronger in the second quarter of this year compared with the first, when output expanded by 5.7 percent.
He said growth was expected to be 6.1 percent in the second quarter. He said in July the bank anticipated growth of 6.2 percent in 2018.
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