Treasury dismisses MPs bid to cap interest rates

The National Treasury has given the strongest indication yet that President Uhuru Kenyatta is unlikely to assent to the bill seeking to cap interest rates.

While terming attempts to cap interest rates as a second best solution, Treasury Cabinet secretary Henry Rotich said on Friday that the government is working on dealing with external factors that have for years kept interest rates high.

According to the CS, Treasury will be tabling the financial services authority bill and amendments to the banking act to introduce a clause on consumer protection, giving borrowers the upper hand when negotiating with banks.

“This is the first time the bill will be regulating the banks in a way that consumers are not exploited right from when you sign your loan contact and how it’s managed. The solution relies on the root cause of why interest rates are high not second best solutions like controlling interest rates,” Mr Rotich said.

The CS raised concern that borrowers had not been patient enough to see government efforts to lower interest rates take effect.

“People are not patient to wait for these reforms to take effect. Obviously you create a control in an environment which the fundamentals are wrong in the first place, what happens is that it has unintended consequences that are worse,” he said.

Interest rates have averaged 19 percent with many observes including commercial banks insisting there is need for the rates to drop.

Parliament in July passed amendments to the Banking Act to cap interest rates to four percent of the central bank rate (CBR). However the bill is yet to be presented to President Uhuru Kenyatta further adding to the speculation that he will not assent to it.

Treasury also plans to reduce domestic borrowing to avoid crowding out the private sector as banks chase lucrative returns from government business.

“That is why you have seen us a lot of times talking about us borrowing outside the domestic economy to avoid competing with the private sector,” Mr Rotich said.

Treasury is set to improve its fiscal policy management to ensure interest rates remain low by avoiding heavy borrowing.