The interest rate cap regime is keeping Kenya from growing its economy at above 6 per cent, an economic research released by Renaissance Capital has indicated.
Through its November update, the investment bank has therefore forecast the country’s economic growth of 5.4 per cent and 5.5 per cent in 2018 and 2019 respectively, compared to 4.9 per cent experienced in 2017.
The growth followed the acceleration of real GDP growth to 6.3 per cent year over year (YoY) in second quarter of the year compared to 4.7 per cent YoY a year earlier, in part due to a strong recovery in the agriculture sector.
Still, this positive economic growth could have been better, says RenCap. “While Kenya’s growth recovery has been swifter and sharper than we expected, we expect credit growth to remain modest owing to the rate cap in place to keep Kenya from growing at 6%+.”
The capping of interest rates on loans has taken a toll on banks’ bottom lines, hampered the effectiveness of monetary policy, and limited credit access to Kenyans.
RenCap, through its Sub-Saharan Africa: PMI report, has also concluded that there was optimism that despite experiences of slower growth, business conditions in the country were still robust.
Kenya recorded PMI of 54 in October, a 56.9 per cent improvement when it fell off the charts to 34.4 during the same period last year due to a lengthy election process.
Its PMI in September was 52.7, attributed to the material increase in fuel prices, on the back of the imposition of 16 per cent VAT, which implied a significant increase in input costs.
A PMI reading of above 50 generally indicates an expanding economy while lower figures implies contracting economic growth in comparison to the previous month.
(Editing by John Njiru)