Kenyan economy will be slowed down

The last couple of weeks have witnessed commercial banks increasing their base lending rates to punitive levels.

Borrowing money from banks now attracts interest rates in the range of 24-30 per cent.

This will have a huge impact on businesses that are servicing loans. The increased interest rates will eat into their profit margins and thus affect their short and long-term goals.

The situation is so serious that some businesses have indicated that they will have to implement some cost-cutting measures such as laying off staff. This will have an overall multiplier effect on the economy and will definitely slow down the performance of the economy.

Loss of jobs and decline in economic growth will lead to untold suffering for the common mwananchi.

Local commercial banks have argued that they are responding to heavy domestic borrowing by the Government and the fact the Central Bank rate has not been reviewed downward.

The Central Bank has been trying to curb the runaway inflation and prevent the shilling from losing more value against major currencies. This issue needs to be addressed otherwise it is bound to cripple some businesses to the level of shutting down.

Conversely, the low interest rate era that started in 2002 led to many things that significantly impacted positively on the business community and the lifestyle of every Kenyan. This should be maintained if we are to experience better economic growth.

When loans become cheap and readily available, many ordinary business people are able to get the much needed finance to boost their businesses with or without the traditional collateral. This will lead to rapid economic growth and high liquidity in the market.

This growth will, of course, put constraints on social infrastructure and amenities, thus the need to expand the same in tandem.

The Government needs to devise ways of taming these punitive interest rates on loans so as to secure businesses and guarantee steady economic growth.