Interest rates in Kenya are unsustainable and the government plans to increase them without driving up lending rates, Finance Minister Henry Rotich said on Friday.
Kenya introduced a cap on commercial lending rates in September 2016, setting them at 4 per cent above the central bank’s benchmark rate which stands at 10 per cent, to limit the cost of borrowing from commercial banks.
It justified the caps at the time, which also set a minimum deposit rate, by condemning lenders of failing to pass on the benefits of growth in the industry to consumers through cheaper loans.
“This is not sustainable,” Rotich told a news conference, saying officials were working with parliament to change the interest rates in Kenya legally.
“It can entail an abolishment or a modification, or complete amendment to allow flexibility.”
Finance ministry officials said changing the interest rates in Kenya may involve a consumer protection law that gives banks more flexibility. The chair of the parliament’s influential budget committee said the minimum deposit rate could be removed.
Earlier this month, the International Monetary Fund said Kenya had committed to significantly modify the interest rates in Kenya.
International Monetary Fund approved a request by Kenya to extend by six months a stand-by loan that was due to expire at the end of March, giving it time to finish compulsory reviews.