MP Njomo says “pretty sure” move to repeal rate cap will be defeated

The Kenyan lawmaker who proposed the cap on commercial banks’ lending rates says he is “pretty sure” last week’s move by the finance minister to repeal it will be defeated in parliament.

In his budget proposals for the 2018/19 (July-June) fiscal year, Treasury Cabinet Secretary Henry Rotich blamed the cap for a slowdown in private sector credit growth and said it would be repealed.

“I’m pretty sure this is something that is not going to sail through,” Jude Njomo told Reuters on Monday, reacting to the minister’s budget speech, which proposed repeal of the cap that was imposed in 2016.

Annual private sector credit growth was 2.8 percent in the year to April, well below the ideal growth rate of 12-15 percent according to the central bank.

Njomo, however, said repealing the cap was not the solution since rates would jump and put credit out of most people’s reach.

He said there had been no evidence that lenders could be trusted to regulate themselves and offer affordable credit. At the time it was introduced, the government said the cap – at 4 percentage points above the central bank rate – would help lower costs of borrowing.

The central bank rate was reduced to 9.5 percent in March to stimulate economic growth but policymakers have expressed concerns that the cap had made it difficult to assess the effectiveness of monetary policy actions like that.

Njomo said parliament was an independent institution and would therefore make its decisions without undue influence from other quarters of government.

Parliament was expected to debate and vote on the budget proposals within the next month, when it will become clear if the lawmakers will strike out the rate cap repeal proposal, he said.

“The executive has brought the proposal. But we also have a responsibility, like people’s watchmen, like people’s representatives to speak on behalf of the people… our people would not like the interest rate cap to be removed,” Njomo said