africa Economy Finance Kenya

Kenyan interest rate cap holding back growth -central bank head

Kenya’s central bank governor said on Tuesday the country’s interest rate cap was holding back the economy, but still forecast that growth would speed up to 6.2 per cent in 2018.

Patrick Njoroge told reporters in Nairobi that the forecast could go higher in the event of a supportive fiscal policy.

The government adopted the cap in September 2016, setting it at 4 percent above the central bank’s benchmark rate, to limit the cost of borrowing from commercial banks, saying they had failed to pass on the benefits of growth in the industry to consumers.

The central bank had previously questioned the measure, saying in September it had made predicting the impact of monetary policy difficult.

“The interest rate cap has been acting as a brake to the economy,” Njoroge said on Tuesday.

A prolonged election cycle last year cut growth by nearly 1 percent from the initial forecast, trimming it to 5 percent. Njoroge said the performance of the agriculture sector was a drag on the economy last year. It accounts for 30 percent of output.

Source: Kitco

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