CBK yet to give guidelines on new rate cap law

The Central Bank of Kenya (CBK) has maintained that the new law capping interest rates may not be the best way to bring down the cost of credit.

This comes three weeks after President Uhuru Kenyatta signed the Bank Amendment Act capping interest rates at a maximum of four percent of the CBK’s base lending rate.

Speaking on Citizen Business Centre, Central Bank Deputy Governor Sheila M’Mbijjiwe said sector players have a role to play in lowering the cost of credit under the supervision of the regulator.

“When we look at the issue of capping, the central bank has been quite clear that controls are not necessarily the right way to deal with that issue,” Ms M’Mbijjiwe said.

The deputy governor however said that previous attempts to get the industry to lower lending rates had taken longer than anticipated, leading to the ultimate law change to mandate banks to set a ceiling on interest rates.

The banking regulator is of the opinion that Kenya being a middle income nation, the spread between deposit and lending rates had remained high with limited access to credit likely to derail development.

“When you look at middle income countries and you look at the spread between the deposit rate and the lending rate, our spread of 11 percent is much higher that you would see in other countries. So there is a journey to be had,” she said.

The Central Bank is however yet to issue guidelines on how the new law will be implemented only stating that the law comes into effect on September 14.

The president signed the act into effect with no adjustments to the bill tabled by Kiambu Town MP Jude Njomo. This has left banks scratching their heads as to how best implement the law, only stating that they would comply.

Banks have also questioned whether the base rate as set out in the law is based on the central bank rate (CBR) or the Kenya Banks’ Reference Rate (KBRR). The vagueness has seen activist Okiya Omtatah move to court seeking to have the base rate defined as the KBRR currently pegged at 8.9 percent.

Ms M’Mbijjiew however said the regulator was ready to steer the implementation of the new law.

“The law is in place and we are a government body and we will implement the law,” Ms M’Mbijjiwe said.