Analysts from Renaissance Capital say the government is the
biggest winner in the retention of rate cap on interest rates since it
guarantees National Treasury access to cheap domestic borrowing to meet
the budgetary obligations.
Global chief economist for
Renaissance Capital Charles Robertson said Wednesday that in the face of
budget funding pressures, the government is now more concerned about
access to cheap money to fund budget than seeing credit to private
sector recover.
“In these tough times, it is more
advantageous to government to get cheap borrowing today than to see
private sector credit growth,” said Mr Robertson.
“With rate cap staying in place, banks will just lend more to government and its cost of borrowing will remain low.
If
rate cap comes off, Renaissance expects banks to reduce or stop lending
to government and focus on private sector lending, driving up cost of
borrowing for government within six months.
According
to Mr Robertson, more credit growth to private sector will mean more
money flows into people’s pockets with a likelihood of them spending
more on imports.
“Then current account deficit may
widen and currency comes under pressure. This is not what government
wants right now,” said Mr Robertson during the opening of fourth annual
East Africa Investor Conference in Nairobi on Wednesday.
In
the absence of the International Monetary Fund credit facility that
expired recently, Renaissance Capital warns that despite Kenya not
having drawn from the facility for a number of years and with close to
six months import cover, the economy could still suffer confidence
crisis.
“At a time of turbulence and market fear,
investors usually want to see an insurance in the market such as the IMF
facility. Markets such as Turkey, Pakistan and Zambia have been upset
for lack of IMF support,” said Mr Robertson.
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