Kenyan lawmakers say interest rate cap laws to stay

NAIROBI (Reuters) - Kenyan lawmakers have ruled out scrapping a law that caps commercial lending rates, local newspapers reported, after a meeting between the lawmakers and the central bank governor.

Kenya capped commercial lending rates in September 2016 at 4 percentage points above the central bank’s benchmark rate, which now stands at 9.5 percent, in an attempt to limit the cost of borrowing for businesses and individuals.

The central bank said in a study last month the cap probably shaved last year’s estimated economic growth rate by 0.4 percentage points because it limits credit to small and medium businesses who are deemed too risky by lenders.

Business Daily quoted Jude Njomo, the lawmaker behind the law, as saying anyone calling for the repeal was wasting their time.

“According to our constitution, the central bank governor and Treasury have no power or mandate to amend laws. That is the prerogative of parliamentarians and therefore, the rest who are speaking (on the repeal), are just making noises that will change nothing,” Njomo was quoted as saying.

The government had said when it introduced the policy that banks were reaping high returns without benefiting customers.

But the central bank, bankers and economists have said the policy would stifle the lending needed to spur on the economy.

With the International Monetary Fund putting pressure on Kenya to drop or modify the lending cap, Finance Minister Henry Rotich said in March that it was unsustainable and the government was planning modifications.