The Central Bank of Kenya (CBK) has denied claims that it is quietly reintroducing interest rate caps through its proposed changes to how banks price loans.
The response comes amid mounting concern from the banking industry through the Kenya Bankers Association (KBA).
In a statement following public feedback on its Risk-Based Credit Pricing Model, CBK has explained that the new framework does not amount to rate control.
Further, CBK has reaffirmed its commitment to a liberal, market-driven credit system.
“The paper does not propose the reintroduction of interest rate caps. Second, it does not indicate that CBK will cease its monetary policy implementation framework anchored on the interbank rate as the operational target.
“CBK continues to enhance the effectiveness of the monetary policy implementation framework,” stated CBK.
Also Read: Standoff as Banks Completely Reject CBK Proposal on Interest Rates on Loans
CBK Defends Its Proposed Changes
In the Tuesday, May 13 statement, the Central Bank of Kenya (CBK) defended its proposed changes, noting that it will allow alignment with macroeconomic policy.
Moreover, it has already implemented a series of changes, including narrowing the interest rate corridor around the Central Bank Rate (CBR) from 150 basis points to 75 basis points.
“This has continued to enhance the stability of the interbank rate and aligned it closer to the CBR,” added the statement.
Additionally, CBK has adjusted the applicable interest rate on the Discount Window, the interest charged to banks for overnight borrowing, from the previous 300 basis points to 75 basis points, which is the upper bound of the interest rate corridor.
This move is expected to make short-term borrowing by banks more affordable and predictable, with potential trickle-down benefits for borrowers.
Also Read: CBK Explains Proposal for Fair Bank Loan Rates
Banks Oppose the Proposals
Earlier, the Kenya Bankers Association (KBA) warned that the model could interfere with access to credit, especially for MSMEs and vulnerable borrowers, if implemented in its current form.
KBA argued that the model gives CBK indirect control over interest rates, a situation that mirrors the effects of the controversial 2016–2019 rate cap law.
“Setting the CBR without triggering its transmission leads to misaligning market outcomes from the policy. Its design did not benefit from CBK actively operationalizing its policy decisions.
“The interbank market (aligned with the CBR) is the best anchor for transmitting monetary policy signals. There would be a weak transmission of policy signals if CBR is not operationalized via liquidity injections/withdrawals,” stated KBA.
In its statement, KBA rejected the proposal in its entirety.
“KBA does not support the CBK proposal in its entirety. By rejecting the interbank rate as a preferred unified base rate and proposing the CBR, the CBK will not operationalize the policy decision after setting the CBR.
As proposed, the reintroduction of interest rate capping contravenes the law that prescribes market-driven interest rates.”
Follow our WhatsApp Channel and X Account for real-time news updates.
