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November 19, 2018

It's time to end interest rate cap

In Thursday's Budget speech, Treasury Secretary Henry Rotich promised to repeal the interest rate cap that has been in place since 2016.

MPs looked unhappy as Rotich spoke and Cofek has promised to campaign against the decision.

The cap limits banks to lending at only four per cent above the Central Bank Rate.

It is true that most top tier banks have remained profitable since 2016 although many second tier banks have made losses.

But lending to individual and small and medium companies has also dropped sharply since the interest rate cap was introduced. Understandably, banks do not want to take the risk of lending to SMEs when they can buy Treasury bills at almost the same rate.

So, like it or not, the interest rate cap is hurting the economy by reducing investment by SMEs and consumer demand from individuals.

The interest rate cap should go. Rotich is right. The banks need more flexibility in assessing risk when lending.

But the banks should not get a completely free hand. The CBK needs to learn from past mistakes and should now more aggressively regulate commercial bank lending rates on behalf of the consumer.

 

Quote of the day: "I am not a dreamer. I am a football romantic."

 

Jürgen Klopp

The Liverpool football manager was born on 16 June, 1967

 

 

 

 

 

 

 

 

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