IMF now predicts sluggish economic growth for Kenya

Kenya’s economic growth rate will slow in 2017, from about six per cent last year, due to sluggish credit growth and as investors take a wait-and-see attitude before a presidential election in August, a senior IMF official has said.

Armando Morales, the International Monetary Fund’s representative in Kenya, said growth is likely to remain within the 5-6 per cent range of the past five years, despite the slowdown. “We expect a deceleration of growth for several reasons, but I think the most important reason we are considering is the potential impact of the interest rate cap on credit growth,” he told Reuters in an interview.

The Government capped commercial lending rates at 400 basis points above the central bank’s lending rate last September, hurting already stressed private sector credit growth. After September, banks’ lending grew by just five per cent year-on-year, down from 17.8 per cent in December 2015. Stricter supervision of banks by the Central Bank and the closure of two mid-sized lenders had cut credit growth before the rate cap came in.