NAIROBI, Kenya, Sep 19 – All eyes are on the Monetary Policy Committee meeting set to be held on Tuesday that will give the way forward on Interest Rates.
According to CBA’s Treasury Department the money market is on a wait and see mood ahead of the outcome of the meeting.
The department is however predicting that MPC will hold the Central Bank Rate as it is at 10.5 per cent.
“The decision will give a way forward on the issue of interest rates that has been the talk of the country since the signing of new banking law,” the department told Capital FM Business.
The new banking law caps interest rates to not more than 4 percent above base rate set by the Central Bank of Kenya.
CBK said that commercial banks will use the Central Bank Rate (CBR) as the base rate to price loans that is currently at 10.5 per cent.
Banks have also adhered to the new law and have re- priced their interest rates for new and existing loans at 14.5 per cent.
There has been mixed reactions in the market, with some analysts complaining that the new interest rates will harm the economy.
ICEA LION Asset Management says by ‘squeezing’ banks returns through interest rate caps; there is a risk that the government will slow overall GDP growth by constraining lending growth.
“The move runs against the fundamentals of Kenya’s growth model: Kenya has been able to maintain such high rates of real GDP growth which are now almost twice the average in Sub-Saharan Africa precisely because it relies on investment as opposed to consumption or exports,” the firm says.