Kenya’s economy will hit the government’s growth target of 6 percent this year on the back of private sector performance, the central bank governor said on Wednesday.
Patrick Njoroge also told Reuters that a new rule capping commercial lending rates – a move the governor opposed – made setting the benchmark rate more complicated as it was not clear how any rate cut would affect commercial bank lending decisions.
The decision to cap commercial lending rates at 400 basis points above the central bank’s benchmark rate, now at 10 percent, sent shockwaves through the market and bank shares tumbled.
The government said it had to force banks to lower commercial rates, often above 18 percent, after non-legislative efforts failed. Experts said it could stop banks offering loans to the kind of small businesses that help drive growth and create jobs.
“The economy is doing relatively well,” Patrick Njoroge told Reuters in his office, saying it was on target for the 6 percent expansion forecast by the government.
“This is the time for investors to actually place a long term bet on the economy.”
But he said the Monetary Policy Committee now faced a tougher job determining how policy, such as last week’s rate cut by 50 basis points, would feed through into the wider economy since the decision to cap commercial lending rates.
“You are not perfectly sure whether lowering rates increases or decreases credit growth. If that doesn’t complicate monetary policy, I don’t know what does,” he said, adding that lower rates could simply encourage banks to shun borrowers deemed more risky even more than before because the returns would be lower.