The law that capped interest rate on loans at 14 per cent last year is set to be abolished.
This is according to the Governor of Central Bank Patrick Njoroge.
Mr. Njoroge said that the rate cap had brought problematic effects on the economy and the banking sector in general.
“It is in our interest as a country and CBK to work to reverse these measures and go back to a regime with freely determined interest rates but in a disciplined environment,” he said. “It is clear to us that this has been problematic in many ways. I can tell you the direction but I cannot tell you when,” he said.
Dr Njoroge said he has had discussions with banks on their new business models in a quest to have discipline in the credit market and hopes this will yield favourable rates.
“Of course we still want to have a profitable business but the question is how much,” said the governor, alluding to the talk that the sector has been recording super-normal returns. Banks were supposed to have submitted their new business models to CBK by the end of April and the CBK believes this will instil credit discipline and prevent oppressive interest rates. The models were to be discussed and approved by respective boards.
