High interest rates will affect businesses and slow down the economy

The last couple of weeks have witnessed commercial banks increase their base lending rates to punitive levels. Borrowing money from banks now attract interest rates in the range of 24 - 30 percent. Many of us thought that this had gone down in history with the Moi era. However, this will have a huge impact on businesses since a number of businesses were servicing loans. The increased interest rates will eat into these businesses’ revenues and thus affect their short term and long term development goals. The situation is so serious that some businesses have indicated that they will have to implement some cost cutting measures such as laying-off staff. This will have an overall multiplier effect on the economy and will definitely slow down the performance of the economy. Loss of jobs, and decline in economic growth will lead to untold suffering for the common mwananchi.

Local commercial banks have argued that they are responding to heavy domestic borrowing by the government and the fact that CBK has not reviewed the Central Bank Rate (CBR) downward. The Central Bank has been trying to curb the runaway inflation and prevent the shilling from losing more value against major currencies. This issue need to be addressed otherwise it is bound to cripple some businesses to the level of shutting down.

Conversely, the low interest rate era that started in 2002 led to many things that significantly impacted positively on the business community and the lifestyle of every Kenyan. This should be maintained if we are to experience better economic growth. When Loans become cheap and readily available, many ordinary business people are able to get the much needed finance to boost their businesses with or without the traditional collateral. This will lead to rapid economic growth and high liquidity in the market. This growth will of course put constraints on social infrastructure and amenities, thus the need to expand the same in tandem.  The government therefore needs to devise ways of taming these punitive loans so as to secure businesses and guarantee steady economic growth.