By Reuters
In Summary
Kenya's economy will hit the government's growth
target of 6 percent this year on the back of private sector performance,
the central bank governor said on Wednesday.
Patrick Njoroge also told Reuters that a new rule capping
commercial lending rates - a move the governor opposed - made setting
the benchmark rate more complicated as it was not clear how any rate cut
would affect commercial bank lending decisions.
The decision to cap commercial lending rates at 400
basis points above the central bank's benchmark rate, now at 10
percent, sent shockwaves through the market and bank shares tumbled.
Force banks
The government said it had to force banks to lower
commercial rates, often above 18 percent, after non-legislative efforts
failed. Experts said it could stop banks offering loans to the kind of
small businesses that help drive growth and create jobs.
"The economy is doing relatively well," Patrick
Njoroge told Reuters in his office, saying it was on target for the 6
percent expansion forecast by the government.
"This is the time for investors to actually place a long term bet on the economy."
But he said the Monetary Policy Committee now faced
a tougher job determining how policy, such as last week's rate cut by
50 basis points, would feed through into the wider economy since the
decision to cap commercial lending rates.
"You are not perfectly sure whether lowering rates
increases or decreases credit growth. If that doesn't complicate
monetary policy, I don't know what does," he said, adding that lower
rates could simply encourage banks to shun borrowers deemed more risky
even more than before because the returns would be lower.
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