The Central Bank of Kenya (CBK) has said that the introduction of interest rates has affected the economy badly.
Speaking at a briefing in Nairobi, Governor Patrick Njoroge said the controls that have resulted in a credit crunch as banks ration credit had slowed down the economy.
“So far the interest rate caps have been acting as a break to the economy,” Njoroge said. “The economy is being held back by this. This is something that we need to bring to the fore and deal with so as to support rather than inhibit economic dynamism.”
Private sector credit grew by 2.4 per cent in the 12 months to December 2017, only slightly higher than the 2 per cent in October 2017.
The law also requires lenders to pay interest of at least 70 per cent of the CBR on term deposits.
The Banking (Amendment) Act, 2016, which came into force on September 14 last year, caps loan charges at four percentage points above the Central Bank Rate (CBR) now standing at 10 per cent.
Critics have accused banks of engaging in blackmail and economic sabotage to force through amendments to the law.
Njoroge said unlocking the credit crunch is a prerequisite for economic growth in 2018.