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 For full Report: Kenya
effects of inflation on the economy.7 Large differentials between deposit rates Table 9.4 shows the figures for December 2006 in terms of different deposit rates in the Kenyan banking system. As we see, there are extremely large dis- parities in these various deposit rates. Thes...
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effects of inflation on the economy.7 Large differentials between deposit rates Table 9.4 shows the figures for December 2006 in terms of different deposit rates in the Kenyan banking system. As we see, there are extremely large dis- parities in these various deposit rates. These disparities no doubt reflect strong differences in institutional structures and instruments being offered to bank clients. For example, there is more than a four percentage-point gap between even the commercial banks’ own “savings rate
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http://www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=39
www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=39
spreads between <span class="highlight">deposit</span> and lending rates, which are extremely wide. Again, de- pending on how one calculates a real interest rate, most <span class="highlight">deposit</span> rates are actually negative. There is therefore <span class="highlight">no</span> incentive to save in formal financial markets. These wide interest rate spreads indicate lack of competition in the commercial banking system. 3. The commercial banking system lends more than one-third of its <span class="highlight">deposit</span> base to the government. This of course reduces the availability of funds for businesses, especially SMEs
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http://www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=172
www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=172
they are aware of these tensions. They do not appear to believe that it is necessary to tighten mon- etary policy in response to food or oil price shocks. It is apparent that in 2006, they did not attempt to tighten excessively in 2006 when food and energy supply shocks raised CPI “head- line” inflation to 13.5 percent. 3. The discussion of the CPI in the 2002 report (Government of Kenya 2002) is based on the 1997 revision of the Kenyan Consumer Price <span class="highlight">Index</span>. Note that we are referring here to the “New Kenya
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http://www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=193
www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=193
siderable uncertainty in the financial system. 2. More significant than problems with interest rate levels are the spreads be- tween <span class="highlight">deposit</span> and lending rates, which are extremely wide, as we also re- viewed in Chapter 7 (Figure 7.5). Again, depending on how one calculates a real interest rate, most <span class="highlight">deposit</span> rates are actually negative. There is therefore <span class="highlight">no</span> incentive to save in formal financial markets. These wide interest rate spreads indicate lack of competition in the commercial banking system. 3. The commercial
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http://www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=200
www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=200
on inflation. Lending-<span class="highlight">deposit</span> rate spread However we may interpret the lending rate level, what is clear is that the interest rate spreads are very high. We have reviewed the basic data on this from 1971– 2006 in Chapter 7 (Figure 7.5). But it will be useful here to examine this set of data again, focusing now on the period since the liberalization of financial mar- kets, i.e. from the early 1990s to the present. Figure 9.2 shows the movement in the difference between the commercial banks’ 0-3 month demand
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http://www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=201
www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=201
An Employment-Targeted Economic Program for Kenya200 <span class="highlight">deposit</span> rate for 2006 averaged 5.1 percent. This means that the real <span class="highlight">deposit</span> rate for 2006—again, establishing the real rate based on the contemporaneous CPI inflation rate—was -8.4 percent, with the overall inflation rate at 13.5 percent. In this sense, it is not surprising that the spread should be so large, to the extent that the inflation rate is indeed capturing something significant about price behavior in Kenya. In this context, the primary
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http://www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=202
www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=202
effects of inflation on the economy.7 Large differentials between <span class="highlight">deposit</span> rates Table 9.4 shows the figures for December 2006 in terms of different <span class="highlight">deposit</span> rates in the Kenyan banking system. As we see, there are extremely large dis- parities in these various <span class="highlight">deposit</span> rates. These disparities <span class="highlight">no</span> doubt reflect strong differences in institutional structures and instruments being offered to bank clients. For example, there is more than a four percentage-point gap between even the commercial banks’ own “savings rate
252
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http://www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=252
www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=252
ACRONYMS 251 CD certificate of <span class="highlight">deposit</span> COMESA Common Market for Eastern and Southern Africa CPI Consumer Price <span class="highlight">Index</span> EPZ export processing zones ERS Economic Recovery Strategy for Wealth and Employment Creation FAOSTAT Food and Agriculture Organization [of the United Nations] Statistics GDP Gross Domenstic Product HCDA Horticultural Crops Development Authority HIPC Highly Indebted Poor Countries IMF International Monetary Fund IPO Initial Public Offering ICDC Industrial and Commercial Development
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http://www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=262
www.undp-povertycentre.org/publications/reports/Kenya.pdf#page=262
<span class="highlight">Index</span> 261 Agricultural Development Corporation, 128, 193, 212 Agricultural sector beans, 101, 115 coffee (See Coffee and tea) cooperatives (See Cooperatives) decline, 107–110 demand-driven extension, 6–7, 131 development, 6–7 employment in, 57–58, 60-61 energy supply shocks and, 108 export of agricultural products, 115–120 fertilizers, 108–109, 113–114, 187 GDP percentage, 106, 115 growth forecast, 106 horticulture (See Horticulture) irrigation (See Irrigation) livestock, 128–129 loan availability, 192–193
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