Tag Archives: IMF

IMF Laments Interest Rate Caps

The IMF has released a statement following its latest discussions with Kenya government officials. It notes that the

“The IMF team expressed concern that the recent amendments to the Banking Act that set limits on deposit and lending rates are likely to have an adverse impact on Kenya’s economy. While these amendments aim to reduce the cost of borrowing and increase the return on savings, international experience shows that interest rate controls are ineffective and give rise to unintended negative consequences. These include reduced access to financing for small and medium-sized enterprises, and an increase in informal and predatory lending at much higher interest rates. Interest rate limits could also reverse the remarkable increase in financial inclusion that has benefited a large proportion of Kenya’s population. These adverse effects could lead to lower economic growth and undermine efforts to reduce poverty. In addition, interest rates limits undermine the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth.

that said the law is here and so far banks have complied, and not challenged the law. They are also releasing their Q3 results, but the full impact of the law will not become apparent till the end fo the year when more details are released such as the number and type of new loans issued in 2016.