Kenya Set to Retain Rate-Cap Law Opposed by Central Bank Chief

(Bloomberg) -- A Kenyan parliamentary committee rejected the National Treasury’s proposal to repeal a contentious law that caps interest rates, despite opposition from the central bank governor and the High Court annulling it.

The National Assembly will schedule a vote on the Committee on Finance and National Planning’s recommendation to keep the law restricting what commercial banks can charge for loans at 4 percentage points above the central bank benchmark interest rate. In defense of the law, the committee said “the banking industry continued to be profitable,” according to a report authored by the lawmakers.

Governor Patrick Njoroge, has said the law affects the central bank’s ability to formulate monetary policy and for markets to determine rates. The “temporary deviation” would be removed as soon as possible, Njoroge said at conference on Wednesday in the capital, Nairobi.

READ: Kenya Banks, Economy Seen Winning as Rate-Cap Law Annulled

Lawmakers approved the law in 2016 to fulfill a campaign pledge by President Uhuru Kenyatta to improve lending terms for borrowers, against the advice of the central bank and the Treasury. Instead, private-sector credit growth slowed as banks preferred lending to the government.

Kenya Set to Retain Rate-Cap Law Opposed by Central Bank Chief

A Nairobi High Court in March annulled the law but suspended enforcement of the ruling for a year to give lawmakers time to review the legislation. While the Treasury recommended scrapping the law, lawmaker Jude Njomo proposed changes that only clarify the extent to which the banks can price loans.

The committee’s recommendations are part of a report on the Finance Bill 2019, in which the lawmakers also rejected a proposal to increase capital-gains tax to 12.5% and retained it at 5%. A higher rate will affect prices of land and hurt the government’s plan to increase the stock of affordable housing, according to the report.

©2019 Bloomberg L.P.

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