Rank: Member Joined: 5/21/2014 Posts: 184
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Kausha wrote:tom_boy wrote:Obi 1 Kanobi wrote:Yowel wrote:tom_boy wrote:Yowel wrote:tom_boy wrote:Let me be counted among the pro rate cap hoi poloi. I still dont understand why rate cap is bad for business. The sooner banks get over their pity party , double down and get to work lending to those who deserve loans, the better it will be for all of us. No need having registered shylocks masquerading as banks. By June 2017, they will have seen the light and done away with their credit crunch games.
By the way, can someone explain to me slowly what interest rates have to do with weakening kenya shs against the dollar. What is the relationship. First, refer to post #1522. Then ask questions. @Yowel, kama huna jibu, dont expose your ignorance. Post #1522 does not answer my question. Let me give you another chance to answer the question. Go ahead, give it a shot, sio mtihani . . . nkt. @tom_boy, kuwa mpole bwana. Currency exchange rates are determined by a number of factors e.g. interest rates, current account on balance of payments, economic growth, relative inflation rate etc. Now looking at interest rates in isolation: if Kenyan interest rates rise, it shall become more attractive to save in Kes, thus a demand for the currency thus appreciation, but the KES is not a major currency and no one will dare do what ive explained considering the fragile nature of third world countries where savings could be wiped out in a flash. Now, answering your question based on the current situation: most emerging economies have borrowed in USD, i.e. both governments (read Eurobond in kenya, Nigeria, Ghana etc) and even the private sector. When the US raise their interest rates, investments and funds shall start trickling back at the expense of other countries, demand for the dollar shall rise and the USD shall appreciate and other currencies shall depreciate (KES etc). These shall be the effects: 1) investment shall be withdrawn by foreigners, a capital outflow which shall affect key investments both in the private sector and public sector. 2) repayment of debt shall be more expensive since the govt source of revenue is kes and repayment of debt is in usd, thus it shall take more kes to buy the same dollar. Thus the govt shall borrow more, still in Kes to meet the obligation, this shall cause interest rates to rise and the debt burden to increase even further. (For Kenya this is dangerous considering our budget deficit stands at 9.3% of GDP). For the government to protect the KES it needs to by either buy more dollars or raising interest rates higher crowding out funding for the private sector. Your answer is irrelevant to this topic. Let me state that I am a proud pro-capping and even started this thread (in what now seems like a long time ago). The capping as has been done only restricts the interest rate spread and affects banks only, it should have no impact on the rest of the economy any different from how a free interest rate regime would have. The base interest rate can still swing between 0-100% depending on the macros, our currency is also still free floating. Basically what banks have been told is that you can only make money within this limits from interest income, nothing else. All this scaremongering by akina Maichblack is a result of only study economic theory and never bothering to apply the same in real life where the variables are as numerous as one can imagine. PS, a major bank last week came to our office to sell us loans including credit cards and mortgages so I don't get this credit crunch bit that everyone is harping about. Wacha sisi tu ishi na caps. The doomsayers can continue waiting for doomsday. Na hata even if the caps were to be reversed, it could only return us to where we were before the capping. The imminent economic collapse or slow down is a result of poor governance, corruption and overspending and has nothing to do with rate caps. It started way before 2016 and could have happened even without the rate caps @yowel, thanks for trying but as pointed out above, your answer does nothing to explain how rate caps are bad with a strong Usd. If anything, rate caps ensure that the Govt has better control of tbill rates as they are literally flooded by banks trying to buy paper. I keep saying its a dance between govt and the banks. Banks must choose wisely. Flood the govt with your money and rates will go lower thus less profit for them. Alternatively, get to work, do your research, make real effort in establishing relationships with loan worthy clients and you will have a good loan book not dependent on govt paper to make a profit. I believe those businesses exist and majority of them have never bothered to take a loan because of the usurious rates,but now, may just be willing to do so. All these sounds nice but the theory breaks down when ypu realize the government is actually not flooded with money but is instead collecting all and showing insatiable appetite for more funds. GK is borrowing at 14.5% from twelve years do you really expect a bank to take consumer or SME credit risk? Certainly not. @Kausha .... you want us to compare a 12-year bond and a 48 - 72 months personal loan as a like for like by pasting a rate  ? There are too many opportunities all around. Open your eyes and maybe you'll spot one
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