Millions of low-income households will not feel the impact of the expected 6.2 per cent economic growth this year, the Central Bank of Kenya said, citing disproportionate growth arising from the capping of interest rates.
Central Bank of Kenya Governor Patrick Njoroge said the rate cap has had a negative impact on millions of low-income earners and small businesses who have effectively been denied credit.
“We expect a 6.2 per cent growth but issue is not just growth. It is important for us to have a much more inclusive growth,” Dr Njoroge said at a Press briefing, adding that pursuit of higher and more inclusive growth is the right quadrant because people “cannot eat GDP”.
“If you have people who are struggling in the SMEs like my butcher, who wants to extend his credit facility but cannot then we have lost our way. It is our job as policymakers to protect such people. Not just the large GDP thing.”
Dr Njoroge’s comment was seen as signalling that the expected increase in the pace of economic activity from a five-year low of 4.9 per cent last year to 6.2 per cent at the end of 2018 may not impact many Kenyans. He said the rate cap has “strangled the economy” by locking out people with low-income per capita and small enterprises that are looking for money to expand their businesses and this could fuel unequal growth. Parliament voted last month to retain the rate caps despite the National Treasury’s push to repeal the law.
“The proposal was not a philosophical consideration. It is time for action and figuring out what the impact of the caps on the economy is,” said Dr Njoroge, who promised that the CBK will continue to push for removal of the caps through dialogue with other policymakers in order to return the country to risk-based pricing.
The CBK’s renewed push for removal of the rate caps comes at a time when commercial banks have collectively returned Sh58.6 billion net profit in the six months through June, a 12.7 per cent growth from a similar period last year.
Dr Njoroge, however, said that the moderate 4.3 per cent growth in private sector credit points to a decrease in the number of active loan accounts.
In August, the private sector operators in agriculture, transport and communication, mining and quarrying sectors all posted negative credit growth.
The latest banking supervision report shows that banks lost 657,000 loan accounts last year, besides the 695,000 lost in 2016.
The value of gross loans disbursed followed a similar trend, having dipped by Sh114 billion to Sh2.15 trillion last year.