Kenya’s central bank’s Monetary Policy Committee (MPC) held its key interest rate steady at 9.00 on Wednesday.
“The MPC concluded that the current policy stance remains appropriate, and will continue to monitor any perverse response to its previous decisions.”
The decision met the expectations of a majority of analysts who had expected the regulator to maintain the benchmark rate citing a stable macroeconomic environment.
The MPC further noted that “Inflation expectations remained well anchored within the target range, and that the economy was operating close to its potential” against a backdrop of domestic macroeconomic stability, sustained optimism on the economic growth
prospects despite the delayed onset of the long rains in parts of the country, a gradual rise in international oil prices and the weakening of global growth.
As regards to the High Court ruling on March 14, 2019, relating to interest rate caps under Section 33B of the Banking Act, the MPC stressed that interest rate caps severely constrain the formulation, conduct, and effectiveness of monetary policy. “Further, these interest rate caps have hampered access to credit by growth sectors, particularly MSMEs,” said Dr. Patrick Njoroge, the MPC Chair.
What Analysts Said on the High Court Ruling
The market will continue to look out for any guidance from the regulator on the recent ruling by the high court, which declared the law capping interest rates unconstitutional. The implementation of the ruling was however suspended for a year to give the legislature some time to respond and amend. This suggests no material adjustments to interest rate expectation for now. Even then, the legislature had vowed to keep the cap in place, reducing hopes of a complete repeal. – CBA Analysts.
The recent High Court ruling offers a window of opportunity for a modification of the interest rate cap legislation and we believe a risk-based pricing model will unlock the current private sector credit dilemma. – Genghis Capital.
We are of the view that no convincing argument in favor of a repeal of the rate cap has been made to the Members of Parliament to warrant a shift in their policy stance and as such, they are likely to maintain the rate cap while amending the section to make it clear and unambiguous. – Cytonn Investments.
