IMF notches Kenya to down interest rates to boost economy

IMF Managing Director Christine Lagarde shaking hands with Kenyan president Uhuru Kenyatta. Photo : AFP

Addis Ababa, Ethiopia (ADV) – Interest rates controls continue to slow down Kenya’s economic growth and as such the International Monetary Fund (IMF) has recommended that they should be “repealed or significantly modified”.

In a statement issued on Wednesday, IMF further argued that interest rate controls also continue to reduce access to finance, and hamper the effectiveness of monetary policy in Kenya.

The Bretton Woods Institution further insists that that any modification by Kenyan authorities should include the removal of the link between the lending rate cap and the central bank policy rate.

IMF further urges Kenyan authorities to remove a floor on deposit rates, and increase the lending cap to a level in order to protect consumers from predatory practices.

Kenya’s Central Bank Governor, Patrick Njoroge had complained that the controls have resulted in a credit crunch as banks ration credit and this had slowed down the economy.

It can be recalled that President Uhuru Kenyatta signed a bill into law in 2016 that capped high interest rates offered by Kenyan banks at 4 per cent above the Central Bank Benchmark Rate.

Presently, the Central Bank Benchmark Rate stands at 9 per cent, which in other words signifies that the highest interest rate a bank could offer is 13 per cent.

IMF officials have however lauded Kenya for the progress made in strengthening the banking supervision framework, and encouraged continued efforts in this area, a statement said.

It further welcomed the improvements made in strengthening competitiveness and the business environment in recent years, and encouraged the authorities to build on the progress made.

© Bur-csa – A.H – N.A / From our regional correspondent Tamba Jean-Matthew III – African Daily Voice (ADV)