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Kenyan two-year Low Lending Rates expected to Boost economy

by Bedah Mengo NAIROBI (Xinhua) -- Lending charges in Kenya have declined by 1.5 percent in about two years since the introduction of law to cap charges, with the lower rates expected to boost the country’s economic growth.

The rates declined to two-year low this week after the Central Bank cut its benchmark rate to 9 percent from 9.5 percent, the lowest in two years.

The law introduced in September 2016 capped rates at 4 percent above the top bank rate.

Commercial banks in the East African nation have consequently taken cue from the Central Bank to lower their rates, thus handing Kenyans cheaper loans in years.

Kenyan citizens are now paying 13 percent on loans, including mortgages, a drop from up to double the amount.

The low rates have come as a big relief to borrowers, with banks scrambling to announce they have reduced their charges as they fight for customers.

Equity Bank, Kenya’s biggest lender by customer base, is one of the institutions that has cut its rate after Central Bank move.

James Mwangi, the chief executive, said on Thursday the lower rates would attract more borrowers.

"We have reduced our charges to 13 percent.

The affordable interest rates will stimulate private sector borrowing, enhancing the economic growth rate," he said.

Besides the lending charges, the bank also capped the interest on saving deposits at 6.3 percent, which is 70 percent of the Central Bank Rate as provided in the banking laws.

While cutting its rate, the Central Bank’s monetary policy committee noted that private sector credit grew by 4.3 percent in the 12 months to June, compared to 2.8 percent in April.

"Credit to the manufacturing, building and construction, and trade sectors grew by 12.3 percent, 13.5 percent, and 8.6 percent, respectively. Growth in private sector credit is expected to pick up gradually with the continued recovery of the economy," said the apex bank.

Borrowers have welcomed the new charges, a majority with long-term loans eagerly waiting to see them effected at the end of this month.

"I have a 15-year mortgage loan of which I have paid for five years.

"My bank reduced charges since the caps were enforced, I am happy they are going to fall this time round," said Lucas Maina, an employee of a telecom in Nairobi.

However, Maina would not celebrate the low charges for long as the Central Bank is keen on amending the law to do away with the rate ceiling.

The bank notes that whereas demand for credit increased following the capping of lending rates, credit to the private sector has remained low.

"The interest rate caps infringe on the independence of the Central Bank and complicates the conduct of monetary policy.

"It is found that under the interest rate capping environment, monetary policy produces perverse outcomes," said the bank in a recent report.

The lending caps are expected to be done away with once MPs debate and pass the Financed Bill presented by the Treasury in parliament in June.



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