CBK governor Patrick Njoroge says interest rate capping hurting the economy

Central Bank of Kenya governor Patrick Njoroge. [Photo: Courtesy]

Central Bank of Kenya has warned that interest rate capping to commercial banks is actually worsening the economy.

Governor Patrick Njoroge, CBK boss says that the economy which is expected to grow at a rate of 6.2 percent this year may be a dream.

Commercial banks are lending at a base rate of nine percent a matter that has seen many banks notify their clients on the same.

While addressing the Monitary Policy Committee, Governor Njoroge asserted that low lending by commercial banks to SMEs seemed risky as cash flow in the economy was hitting rock bottom.

Njoroge affirmed, "While we talk of buoyant economy, the impact is not felt downstream. I dare say people don’t eat GDP. It is because the cap on commercial interest rates is strangling the economy."

He lamented on failure of passing the proposal of removing rate cap in 2016 that was projected in Finance Bill 2018 saying that Central Bank of Kenya will not bow down on its effort of ensuring that such is achieved.

"We cannot give up. We will pick the issue with relevant policy makers and illustrate to them effects of capping interest rates," he reaffirmed.

The lender had projected a 6.1 percent growth in agricultural production in the second quarter of 2018. "We continue to project relatively strong economic outcome for 2018, projecting an overall growth of 6.2 per cent. Investor sentiments continue to be strong though little dampened by jitters brought about by VAT on petroleum products," CBK believed.

Governor Patrick Njoroge said there were no hopes of renewing International Monetary Fund precautionary facility in the prospect since the country’s forex cover is more than enough. The foreign reserve stands at Sh8.5 billion which is five times more of 5.1 monthly import cover.