IMF: Capping lending rates would be ‘suicidal’

By Steve Mkawale

International Monetary Fund ( IMF) has warned against plans to cap bank lending rates, saying the move would be ‘suicidal’.

IMF Assistant Director for Africa, Mr Domenico Fanizza, said capping lending rates would reduce access to credit. Instead, he proposed banks should be allowed to compete in the loans market.

 “This will automatically lower the interest rates thus enabling more Kenyans access funds from the banks.

He argued that setting the benchmark lending rate for banks would open doors to certain individuals thus locking out majority of Kenyans.

Fanizza also announced that the IMF was ready to disburse Sh2.5 billion to Kenya under the concessional loan agreement.

The money is part of Sh6.7 billion IMF credit to help Central Bank of Kenya (CBK) shore up its reserves to be able to intervene on external current account deficit, following the weakening of the shilling against world major currencies.

review mission

But that the actual disbursement will depend on whether the IMF Board approves the recommendations of the fourth review mission slated for September, said Fanizza.

Fanizza was happy that previous disbursement of Sh4.2billion enabled the country rein in on inflation, exchange rate and overall cost of living.  He led a delegation of IMF officials – including resident representative Ragnar Gudmundsson – to Continental House in Nairobi where they met members of the Budget, Finance and Public Accounts committees of Parliament.

“We are happy with the measures implemented by the Government following our third review mission, in which it has seen a tightened monetary and fiscal policy that has resulted to low inflation and exchange rate,” said Fanizza.

The team is in Nairobi to lay ground for the fourth review mission scheduled for September and October. Ten MPs attended the meeting