IMF wants Kenya to revise capping of interest rates

By Caroline Njenga

The International Monetary Fund (IMF) has proposed that the government reverses the law capping interest rates to drive economic growth.

The IMF says even though the adverse effects of the interest rates control are manageable in the next two years, if maintained, they could potentially pose a risk to financial stability of the country.

However, lobby group, Consumer Federation of Kenya has reacted angrily to IMF’s proposal noting that the reasons that necessitated the capping have not been addressed.

The debate on whether to cap interest rates or not is on again.

This time round, spearheaded by the International Monetary Fund that is raising concerns on grounds that the controls are likely to slow down economic growth in the country.

In a statement, Deputy Managing Director and Acting Chair of IMF’s Executive Board Tao Zhang says that although the adverse effects of the controls are manageable in the near term, if maintained, they could potentially pose a risk to financial stability.

“It is essential to remove these controls, while taking steps to prevent predatory lending and increase competition and transparency of the banking sector,” added Zhang.

Zhang however said that macroeconomic outlook is positive, with Kenya experiencing robust growth and reduced external imbalances.

However, lobby group, Consumers Federation of Kenya has rubbished IMF’s proposal to remove interest rate caps terming it reckless and uncalled for.

In a statement, Consumers Federation of Kenya Secretary General Stephen Mutoro says  that while IMF is quick to call for removal of caps on interest rates, it turns a blind eye on the reason the capping was necessitated.

Mutoro claims banks were previously charging high interest rates and offering low interest on deposits to cover for insider trading and huge loans extended to undeserving bank directors.

He says until banks in Kenya embrace appropriate business ethics, the proposals by IMF and its’ fears on financial inclusion risks remain unrealistic.

Mutoro calls on banks to innovate, enhance cost-efficiency and tap on winning consumer loyalty to survive the post Banking Act, 2016 era.