14 March 2019

Kenya: High Court Suspends Interest Rate Capping for 12 Months

Nairobi — The High Court has ruled that regulating Bank interest rates in unconstitutional.

Judges Francis Tuiyot , Jackline Kamau and Rachael Ngetich ruled that a section of the Banking Amendment Act 2016 that gives the Central Bank of Kenya authority to set interest rates disrupts the existing relationship between banks and their customers.

Consequently, the court said that Section33(b)1 and 2 have been suspended for a period of 12 months to "give National Assembly an opportunity to reconsider the existence of the provisions."

"Central bank of Kenya will continue to provide measures of clarity to the impugned provisions," added the three bench court.

The ruling is likely to favor banks, CBK and Bretton Woods institutions who have repeatedly said that capping interest rates has led to a squeezing of credit to the private sector.

The regulator, in several occasions, has claimed that the caps limits its role of setting an effective monetary policy.

The judges agreed with the petitioning banks that the interest rate setting mechanism enacted in 2016 is discriminatory against banks and their CEOs.

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