Interest rate caps are unsustainable, CS Rotich says

Caps on commercial interest rates in Kenya are unsustainable and the government plans to modify them without driving up lending rates, Treasury Cabinet Secretary Henry Rotich said on Friday.

Kenya introduced a cap on commercial lending rates in Sept. 2016, setting them at 4 percentage points above the central bank’s benchmark rate which stands at 10 percent, to limit the cost of borrowing from commercial banks.

It justified the caps at the time, which also set a minimum deposit rate, by accusing lenders of failing to pass on the benefits of growth in the industry to consumers through cheaper loans.

“This is not sustainable,” Rotich told a news conference, saying officials were working with parliament to change the law.

“It can entail an abolishment or a modification, or complete amendment to allow flexibility.”

Treasury ministry officials have said the changes may involve a consumer protection law that will give banks more flexibility. The chair of the parliament’s influential budget committee told Reuters the minimum deposit rate could be removed.

Earlier this month, the International Monetary Fund said Kenya had committed to substantially modify the interest rate caps.