Implications of the new Interest rates
Implications of the new Interest rates
| Post date: Wed, Sep 7, 2016 | | Category: Economic Policy | |
On 24th August 2016, Kenya made a bold move to defy the free market idealism by introducing controls on the bank interest rates. The law confines banks to charge between 10.5 and 14.5 per cent on the loans that they lend to their clients. In spite of the fact that Kenya’s financial market is the leading in East Africa, the law capping the rates is a litmus test for Kenya. All the East African Community member states have a floating exchange rate which is in line with the East African Monetary Union Protocol.
Kenya’s decision is not very surprising, there have been concerns in the region about the high interest rates that commercial banks charge on the loans issued to clients vis-à-vis the rate on the loan deposits. Regional banks like Bank of Tanzania are closely watching the outcome of the decision by Kenya to introduce caps on loan interest rates before considering a move back home. However, the question has been, is the capping good or bad. The chart below provides historical trends of principal rates in Kenya from 1991 to 2016.
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Kenya’s comparison of Out of pocket expenditure on Health with its peers
In the advent of increased Non-Communicable Diseases such as cancer that require long time treatment, reduction of the Out-of-pocket payments is key in sustaining affordability and access to health care services. These can be achieved through increased insurance both by the government and the private sector.
Outstanding Stock of Treasury Bonds by Holders
Treasury bonds are a secure, medium- to long-term investment tools that typically offer periodic interest payments semiannually throughout the bond’s life. The Central Bank auctions Treasury bonds on a monthly basis, but offers a variety of bonds throughout the year, so prospective investors should regularly check for upcoming auctions. Outstanding Treasury Bonds increased by 11.2 per cent to Ksh 1,152,041 million in June 2016 from Ksh 1,035,662 million in June 2015.
Outstanding Stock of Treasury Bills by Holders
In June 2016 compared to June 2015, the stock of Treasury bills increased by 84.4 per cent to Ksh 588,088 million from Ksh 318,929 million while the proportion held by commercial banks increased by 67.4 per cent to Ksh 361,859 million from Ksh 217,742 million. In the same period, holdings by pension fund institutions increased to 20.1 per cent from 12.8 per cent while proportion held by insurance companies decreased to 3.1 per cent from 6.5 per cent.
Outstanding Stock of Treasury Bills and Bonds by Holders
The medium term debt strategy for the financial year 2016/17 emphasized on the need to develop the domestic market by increasing the issuance of Treasury bonds over the medium term. The strategy targeted a mix of 60 percent and 40 per cent for external and domestic financing, respectively.
Trends in Kenya’s Total Domestic Public Debt Stock from 1999 – 2018 (In nominal terms)
Trends in Kenya’s Total Domestic Public Debt Stock from 1999 – 2018 (In nominal terms) Source: Central Bank of Kenya The number of the Week: 2.1, this is the factor by which domestic debt has grown in the last five years. Domestic debt has nearly doubled in the last five years (2013-2018) Between 1999 and […]