Kenya High Court lifts Treasury approval requirement for bank rate hikes

A High Court order has temporarily suspended Section 44 of Kenya’s Banking Act, which previously required commercial banks to obtain approval from the Cabinet Secretary for the National Treasury before increasing loan interest rates. This decision follows a petition by the Kenya Bankers Association (KBA), which argued that such requirements interfere with the constitutional independence of the Central Bank of Kenya (CBK) regarding monetary policy.

Parallel to this legal development, research published in the Journal of Business and Finance Research highlights a disconnect in the transmission of monetary policy. A study led by David Musimbi found that between 2010 and 2021, Kenyan banks exhibited an incomplete interest rate pass-through. When the CBK adjusts its benchmark rate, commercial lending rates do not fully mirror these changes, with rate increases often being smaller than the central bank’s adjustments. This lag may be due to structural factors like foreign ownership or bank liquidity levels, potentially reducing the effectiveness of monetary policy in managing inflation and economic growth.