Quick word from CBK should send rates down
On Thursday, the Central Bank took a bold decision to lower its indicative lending to 16.5 per cent signalling an end to the high interest rate regime.
While the decision seems to have been taken as a way to spur economic growth — first-quarter figures show growth had slowed to 3.2 per cent, the lowest since the country recovered from the turbulence of the post-election violence — it inspires little faith that the country is out of the woods.
The raising of the base lending rate to 18 per cent last December was done to help tame runaway inflation at the time at 19.72 per cent and strengthen the local currency that was under pressure from imports and had taken a beating to a low of Sh107 to the dollar in October.
The idea was simple: limit the amount of credit in the economy and by extension slow consumption, especially of imported goods. This seems to have worked, but the real reason why the country faced the turbulence is yet to be addressed.
As CBK moves to make credit affordable, consumers will find it easy to borrow to fund consumption, kicking off another wave of inflation. And as producers and suppliers move to meet increasing demand, they will import more, putting the shilling under renewed pressure.
The knee-jerk reaction will be to make credit expensive, and this as we now know has adverse effects on economic growth.
As previously argued, the only solution to the shilling and high cost of living problem will be for the government to encourage local production and value addition to agricultural produce, aggressively seek more export markets, especially within Africa, and to make it expensive to import luxury goods.
To consumers of bank loans CBK’s latest decision gives hope that they will get a reprieve in lower monthly repayments. While the bank has done its part, the ball is now in the court of the commercial banks court to transmit this to the consumers.
Then it is hoped that the decision to lower lending rates will be made with equal zeal and magnitude as exhibited when banks were pushing the rates up.
Stop premature campaigns
On Friday, President Kibaki called on politicians to desist from early campaigning.
The President’s advice makes a lot of sense because, all things remaining constant, the earliest the General Election can be held will be in March next year.
As it is, presidential hopefuls have been criss-crossing the country for campaign rallies that have effectively put the country on an electioneering mode.
The problem with our campaigns is that they are noisy and disruptive affairs that often have the effect of bringing development pursuits to a standstill.
And, because of their adversarial nature, they tend to create the impression of a build-up that can only end in conflict.
This, in turn, frightens away investors who sensibly hold back until the elections are held and concluded.
Given our painful experience with the 2007 disputed presidential election result, this should be poignantly real for our politicians.
Although peace has returned to parts of the country that bore the brunt of the violence, there exists underlying animosity and suspicion among communities.
Even more importantly politicians, particularly Members of Parliament, have pending tasks which should be keeping them busy and away from the campaign trail.
These should preoccupy politicians who should cease premature campaigning.
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