Central Bank of Kenya (CBK) Governor Dr Patrick Njoroge during a press conference at his office in Nairobi on January 31 2017.PHOTO DAVID NJAAGA/STANDARD}
Central Bank of Kenya Governor Patrick Njoroge has given Treasury Cabinet Secretary Henry Rotich backing to argue against the rate cap ahead of his budget speech.
Dr Njoroge stopped short of recommending that the law should be done away with, only saying the direction of the interest rate caps would be known after CBK concludes a study on the legislation’s impact.
“Frankly, if the damage is so great, I think there is only one answer: to deal with it and dealing with it is very clear. We at CBK have not been idle,” said the CBK boss without stating in what way the regulator would deal with it.
He said even though the Monetary Policy Committee’s (MPC) preliminary indications showed there has been a damage to the economy, his team would not succumb to the hypothesis but collect more information and “let the data speak”.
The governor has said on several occasions that the move to cap interest rates had complicated the work of MPC. He was, however, quick to add that CBK would ensure a soft landing if the rate cap law is removed to protect consumers from being thrown back to rates above 20 per cent.
“There are many reforms we are doing to address the cost of credit. What would happen if interest rates were lifted today? Would we go back to the level we were at before? That would be atrocious!” he said. According to Njoroge, MPC has been blunted by the rate cap and almost all loans are currently clustered around 14 per cent.
He said the trend means that if the committee will ever sit and adjust the rate downwards, it would mean that banks would view those currently getting the loan at 14 per cent as more risky and phase them out. MPC has kept the benchmark rate at 14 per cent for three straight occasions.
Asked when the results of the study on rate cap would be out and what would be the way forward, he was non-committal.
“I can’t speculate. I’m a firm believer. We shall go back to where we should be. I can’t tell you when. But I believe the data will show that it is quite damaging to the economy and to our own people. The people that we expected to help are the ones hurting most,” said Njoroge.