Swenani wrote:Obi 1 Kanobi wrote:Swenani wrote:This is not about uhunye protecting his interests in CBA but it's common sense......It is a bad idea to cap interest rates-they are beter ways to reduce the rates if the govt is keen to.
Which are this other methods everyone keeps talking about and why has Treasury/CBK not applied them to the sector.
It is this failure by the CBK/Treasury to tame rates that has now forced the legislature to come up with this law
By the way interest rates caps of one form or another do exist in South Africa, India, Bangladesh.
In the US, France and even UK, caps do exist to check Usurious and predatory lenders. Our entire financial system is predatory and need to be checked through such caps.
Let's agree on one thing,the banks are not reluctant to reduce rates but rather the CBK and Treasury are reluctant.
Compare this Kenyan rates with the countries you have quoted above which all contribute to the final interest rate quoted by banks
1. Central bank rate-10.5%
2.Interbank rate 6%
3. Discount window
16.5%4. T-bill rate-7.9%-Imagine its risk free??
5. KBRR-8.90%
6.Inflation rate is 5.8%
The other ways for the govt to decrease the interest rate is
1. Reduce domestic borrowing or reduce the T-bill/bonds auction rate
2.CBK to reduce the KBRR, CBK rate, REPO and interbank rates coz it doesnt make sense for a bank to borrow expensively from the CBK and lend cheaply or lend cheaply to the public yet it can lend expensively to a risk free entity(GoK)
To compare Kenya with others nations without stating the basis of comparison as Mr Obi want to do will not give the right picture/analysis.
Let's discuss Kenya as it is.
The writing is on the wall, the rates are high period. Question is, How can they be brought down?
Sir Swenani rightly gives part reasons n ways this can be tackled.
The ever wazuans have & are giving reasons why it's high, its from the reasons that we can find the solutions.
The govt of the day is heavy on borrowing to fund the fiscal budget, so domestic borrowing seems not be slowing esp going to an election year. The tbill rates have are starting an upward trajectory, how then do you cap the rates for a lender?.
A bank (read financial institution) is merely an a fulcrum for an economy growth between the savers and borrowers (read enterprenuers). so its a willing seller willing buyer.