CBK warns parliament on reintroduction of interest rate caps declined by Uhuru
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CBK governor Kamau Thugge warns against reviving interest rate caps on loans arguing that it will hurt the economy
CBK governor Kamau Thugge warns against reviving interest rate caps on loans arguing that it will hurt the economy.
The Central Bank of Kenya (CBK) governor said reintroducing rate capping that was scrapped in 2019 would lead to a credit squeeze in the private sector.
Dr Thugge was reacting to the revelation by Baringo North MP Joseph Makilap who has drafted a Bill to introduce interest rate ceilings that former President Uhuru Kenyatta halted.
Uhuru Kenyatta declined to assent to the Finance Bill 2019 and instead asked MPs to scrap lending rate caps.
The government in September 2016 imposed legal caps on lending rates at four percentage points above the Central Bank’s benchmark — then prevailing at nine percent — and set the maximum borrowing rate at 13 percent.
“I want to persuade this committee not to bring back interest caps. It was a disaster. If you bring back that law, it will spell disaster for the economy,” Dr Thugge said.
Dr. Thugge was speaking before the National Assembly’s Finance and National Planning Committee where he presented the CBK views on the Proceeds of Crime and Anti-Money Laundering (Amendment) Bill 2023.
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“Credit to the private sector reached double-digit as of March 2022. Since 2016 when the interest rate cap was imposed, the private sector had been crowded out,” he said.
“Since then, credit to the private sector averaged five to six percent growth year-on-year. Before the interest controls, credit reached 22 percent. There were no controls and money went to the private sector.”
He said currently, credit to the private sector averaged 12.2 percent from March, and imposing caps will deny the sector money from commercial lenders.
Committee vice chairperson Benjamin Lang’at (Ainamoi) said the interest caps were sabotaged by the banks.
The Kenya Bankers Association (KBA) told the committee that it has denied the private sector funding in favour of the government.
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