The Central Bank of Kenya (CBK) has allayed concerns that it plans to reintroduce interest rate caps, clarifying that its recent consultative paper on risk-based credit pricing does not signal a return to the controversial policy.
In a statement issued following the close of public submissions on its Consultative Paper on the Review of the Risk-Based Credit Pricing Model, the CBK stated that the paper “does not propose the re-introduction of interest rate caps.”
The regulator also maintains that it is not shifting away from its current monetary policy framework, which is anchored on the interbank rate as the operational target.
The clarification comes after the paper, released in April 2025, prompted over 40 submissions from a wide cross-section of stakeholders—including commercial banks, non-bank financial institutions, international bodies, consultancy firms, academia, and private citizens.
The public had until May 2 to submit their comments.
CBK Governor Kamau Thugge noted that the central bank will consider all input before implementing any changes.
However, he stressed that the bank’s primary focus remains on fostering a stable, transparent, and accessible credit market—not on reintroducing policy measures that previously distorted credit access.
“In no way does this review signal a policy reversal toward rate caps,” CBK stated. “Rather, we are focused on improving the framework that allows lenders to price risk appropriately while ensuring credit is accessible and affordable.”
In 2016, Parliament passed a law capping interest rates charged by commercial banks. The law mandated that banks could not charge more than four percentage points above the Central Bank of Kenya (CBK) base rate—also known as the CBK rate.
While the goal was to make credit more affordable and protect consumers from predatory lending, the unintended consequences soon became clear.
Banks, wary of the reduced profit margins, became more selective in issuing loans.
Riskier borrowers, especially small businesses and individuals without strong credit histories, were shut out of the formal credit market. Instead of expanding access to credit, the cap led to a contraction.
The CBK and economists raised concerns, pointing out that the policy distorted credit allocation and hurt economic growth. In response, the government repealed the interest rate cap in 2019, allowing market forces to play a greater role in determining lending rates.
In the paper, CBK says that as part of recent reforms, the bank has narrowed the interest rate corridor around the Central Bank Rate (CBR) from ±150 basis points to ±75 basis points.
Additionally, the CBK has revised the interest rate on the Discount Window—from 300 basis points to 75 basis points above the CBR—further supporting consistency in short-term interest rates.
