CBK boss warns banks against going back to high interest rates era

Wednesday, November 27th, 2019 00:00 | By
Central Bank of Kenya.

The Central Bank has cautioned lenders against reverting to the high interest rate regime which prevailed before  the now repealed interest cap law became effective in September 2016.

Governor Patrick Njoroge said CBK has been in discussions with commercial banks having signed an understanding that they will not go back to the old ways of doing business even as he warned the government against “fiscal dominance” going forward.

“This time will be different. They (banks) are not going back to the same kind of ‘wild west banditry,” said Njoroge.

Speaking yesterday during the a post-Monetary Policy Committee (MPC) briefing, he urged banks to be ethical in dealing with customers.

The rate cap imposed in 2016, was removed a month ago, as commercial banks had refused to provide credit to small and medium enterprises (SMEs), arguing they were risky and could not be given credit based on the cap. 

Njoroge assured borrowers that each bank has promised not to increase the interest rates dramatically, adding that the prevailing economic conditions do not warrant charging very high rates of more than 18 per cent or so.

“They need to be more ethical. They should stay away from short term gains,” he said. The MPC lowered the benchmark lending rate to 8.5 per cent for the first time in more than a year, saying a tightening stance by the National Treasury had created room for easing.

Njoroge said during the interest rate cap period, CBK was driving cautiously with its feet on the “brake” thereby not giving the country the optimum they would have benefitted from growth.

He warned the government against engaging in fiscal dominance – which he said is dangerous and will return the country back to the old days when CBK was printing money to support budget.

He admitted that CBK was getting a lot of hubris on the matter, adding that it needs to be protected to effectively perform its responsibility.

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