NAIROBI, Kenya (AP) — Kenya’s president on Wednesday said he signed into law a bill that caps interest rates for bank lending and deposits, saying it is clear that Kenyans are frustrated with the “lack of sensitivity” by the financial sector.
“These frustrations are centered around the cost of credit and the applicable interest rates on their hard-earned deposits. I share these concerns,” President Uhuru Kenyatta said.
Proponents for capping interest rates say rates of up to 21 percent have been stifling economic growth in this East African country.
The new amendment caps banks’ lending interest rates to no more than 4 percentage points above the Central Bank rate, currently at 10.5 percent.
The Kenya Bankers Association has opposed regulation of interest rates, saying banks can regulate themselves. The association has said that when interest rates are capped, banks will lend only to those with less risk. That could affect smaller enterprises and people with lower incomes.
Many had not expected Kenyatta, whose family is associated with the ownership of a prominent bank, to sign the bill into law. However, observers have pointed out that his administration needed to fulfill pledges his campaign made in 2013 before next year’s election.
Opposition leader Raila Odinga had urged the president to sign the bill, saying interest rates have been pushed up particularly by increased government borrowing from the domestic market. Odinga has called the borrowing “higher than that of any regime in the last 10 years,” saying this has pushed individuals and corporations out of competition for money and slowed economic activity.
“High interest rates … have forced some investors to relocate to neighboring countries with better rates,” he said.