Interest rate cap law to hurt Kenya's economic growth: IMF

Kenya's interest rate capping law is likely to dampen economic growth in 2017, the International Monetary Fund (IMF) said on Friday.

The IMF is projecting Kenya's GDP to expand by 5.3 percent in 2017, which is lower that the growth achieved last year due in part to the effects of the interest rate capping law.

"We have seen evidence that the interest rate capping law is affecting access to credit for small and medium enterprises which are a key driver of economic growth," IMF Kenya Resident Representative Armando Morales told Xinhua in Nairobi on the sidelines of the Capital Markets Open Day.

In 2016, the East African nation introduced a law that capped the interest rates that commercial banks could charge borrowers.

Currently, commercial banks can charge a maximum interest rate of 4 percent above the Central Bank Rate (CBR).

Morales said that the IMF has already made it clear that Kenya needs to replace the interest rate capping law with more meaningful measures that deal with a high interest rate regime.

"The government is also concerned with the law and we are maintaining discussions with Kenya on the best way forward," Morales added.

The resident representative noted that Kenya is already experiencing a decline in the growth of credit to the private sector.

"In Zambia, the law was removed and in fact no other nations are introducing the law because they are aware it does not result in a positive outcome," Morales said. Endit