EFFECTS OF INTEREST RATES STABILITY ON KENYA’S ECONOMIC PERFORMANCE
Abstract
The purpose of this study was to examine the effects of interest rates stability on the economic performance in Kenya. In the recent past, the government has been struggling with deficit in the annual budget forcing them to borrow funds from both internal and external financial institutions. Interest rates in Kenya have been fluctuating over the last few years with the effect of fluctuations remaining unknown on economic performance. Interest rates and macroeconomic volatility generally were the motivation behind this study as there was little information about effect of the same on economic performance in Kenya. Commercial banks were the most affected sector as interest rates have a significant impact on its operations, in relation to lending rates and the loanable assets. Following interest rate liberalization, interest rates have fluctuated to respond to changes in demand and supply of loanable funds in the financial market. The study aimed to establish the effect of interest rate stability on economic growth performance in Kenya and the empirical evidences that help answer the research objective. The data was collected from the Kenya National Bureau of Statics, Kenya Banker Association and Central bank of Kenya for a 10 year period starting 2005 to 2014. The study was guided by the independent variables (purchasing power parity and credit supply) to analyze the affect interest rates stability on dependent variable (economic performance) in Kenya. The study was utilizing a purposive research design as secondary data was used hence draw on a wide range of qualitative research designs. This study used quantitative data analysis techniques with the assistance of Statistical Packages for Social Sciences (SPSS). The study findings, through the slope of the generated trends from 2005-2014, indicated that there was a study rise in Purchasing Power Parity and Credit Supply. The correlation and regression analysis informed the conclusion that the Economic Growth of a country was significantly influenced by Purchasing power Parity and Credit Supply. The result of the study was going to benefit among others, investors and consumers of financial services and industrial goods as it recommend the involvement of the government developing various fiscal policies to control the interest rates and inflation rates so as to ensure good economic growth rate.
Key Words: Purchasing Power, Credit Supply, Interest Rates Stability
Full Text:
PDFReferences
Ahrend, R., P. Catte., & Price,R. (2006). Factors Behind Long-Term Interest Rates, Financial Market Trends, OECD, No. 91, (November).
Amin,S.& Sayedi .et.al (2013),Scheduling to minimize gaps and power consumption, Journal of Scheduling, Publisher, Springer US,v.16,151-160
Bosworth, P.B. (2014). "Interest Rates and Economic Growth: Are They Related?" Working Papers, Center for Retirement Research at Boston College wp2014-8, Center for Retirement Research.
Berument, H. (1999). The impact of inflation uncertainty on interest rates in the UK. Scottish Journal of Political Economy, 4(2), pp, 207-218.
Bowe, M. & Saltvedt, T. M. (2004). Currency invoicing practices, exchange rate volatility and pricing-to market: evidence from product level data: International Business Review (pp.281-308)
Bleaney, M.& Fielding, D. (2002) Exchange rate regimes, inflation and output volatility in developing countries, Journal of development economics, v. 68, 233-245
Buchanan,M.,J., (2013).Economics from the Outside In: Better than Plowing and Beyond, Texas A&M University Economics Series
Cardarelli,R., Selim E., &Kose.MA., (2009) Capital Inflows: Macroeconomic Implications and Policy Responses, International Monetary Fund, Working Paper
Central Bank of Kenya Reports, (2013). Bank Supervision Annual Report. Also accessed from www.cbk.co.ke on31/03/2014
Christopher, J., N., & David E., R. (2008). Real Interest Rate Persistence: Evidence and Implications, (pp 609-641). Federal Reserve Bank, St. Louis Review,
Creswell, W., J. (2003) Research Design: Qualitative, Quantitative, and mixed Methods Approaches (2nd Ed), Sage publication.
Cytonn Investments Reports. (2015),The impact of high interest rates on the Kenyan economy and Investments
Demirguc, K., A., & Huizinga, H., (1999). Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence. World Bank Economic Review 13,379- 450
Devereux, M., B., & Yetman, J., (2002). Price setting and exchange rate pass through: Theory and evidence. In the book Price Adjustment and Monetary Policy, pp. 347-371, a compendium published following the eponymous conference held at the Bank of Canada, Ottawa.
Douglas W., E., (2000). Government Debt, in the Handbook of Macroeconomics, Revised 2000, Federal Reserve Board. Congress Budget Office
Erixon, Lennart, 2011. "Formalizing a new approach to economic policy - Bent Hansen, Gösta Rehn and the Swedish model," Research Papers in Economics 2011:20, Stockholm University, Department of Economics.
Fofack, H., 2005. Non-Performing Loans in Sub Saharan Africa: Causal Analysis and Macroeconomic Implications. World Bank Policy Research Working Paper No. 3769,(PP134-154)
Gagnon, J., E., and Ihrig, J., (2004). Monetary policy and exchange rate pass through, International Journal of Finance and Economics, 9, 315-338.
Hansen, B., E., & Seshadri, A., (2013).Uncovering the Relationship between Real Interest Rates and Economic Growth. Ann Arbor MI: University of Michigan Retirement Research Center (MRRC) Working Paper, WP 2013-303.
Jayaraman, T.K., & Sharma, R., (2003). Why is Interest Rate Spread High in Fiji, Results from a Preliminary Study? Fijian Studies, 1, (pp 45-67)
Kimberline, C.,& Winsterstein.,A., (2008) Research Fundamentals ,Validity and reliability
of measurement instruments used in research, Am J Health-Syst Pharm-Vol 65
Krugman and Obstfeld, (2009). International Economics. Theory and Policy -8thEdition; Pearson Education
Lukasz, R., and D Smith, T., D., (2015), “Secular drivers of the global real interest rate,” staff working paper, Bank of England.
Philip Tuner,(2014) The global long-term interest rate, financial risks and policy choices in EMEs, Monetray and Economic department
Ronald A. Ratti and Joaquin L. Vespignani., (2015) What Drives the Global Interest Rate
Michael, B., D., & Yetman, J., (2014). Globalization, Pass-through and the Optimal Policy Response to Exchange Rates, NBER Working Papers 20252, National Bureau of Economic Research, Inc. Journal of International Money and Finance,(pp104-128)
Todaro, M., P., & Smith, S., C., (2006). Economic Development, Pearson Addison Wesley, Amazon
Tymoigne, E., (2006). “Improving Financial Stability: Uncertainty versus Imperfection.” Journal of Economic Issues, 41 (2), June 2007: 503-511
Magud, N., E.; Carmen M., R., & Esteban, R., V., (2012) Capital Inflows, Exchange Rate Flexibility, and Credit Booms, International Monetary Paper, Western Hemisphere Department
Million, N., (2003), Shifting regimes in the relationship between interest rates and inflation Proceeding of the 2nd International conference on Economic Policy Modeling.
Mugenda and Mugenda, (2003) Quantitative and Qualitative Approaches, African Centre for Technology Studies, Nairobi, Kenya
Ngetich,C., &Wanjau K.,(2011)The effects of interest rate spread on the level of non- performing assets: A case of commercial banks in Kenya, Research paper International
Journal of Business and Public Management (ISSN: 2223-6244) Vol. 1(1): (pp58-64)
Njuguna, S., N., & Ngugi R.W., (2000). Banking Sector Interest Rate Spread in Kenya, Macroeconomic and Econometric Modeling. Kenya Institute for Public Policy Research and Analysis (KIPPRA) Discussion Paper No 5, 6, 8
Ngugi, R.W., (2001). An Empirical Analysis of Interest Rate Spread in Kenya, African Economic Research Consortium, Research Paper106
Okoth, M.N. (2013). The effect of interest rate and inflation rate on exchange rates in Kenya, School of Business Nairobi University, 2-9
Pattnaik, S. and Mitra A. K., (2001), Interest Rate Defense of Exchange Rate: Tale of the Indian Rupee, Economic and Political Weekly, November 24, (pp 4418- 4427)Power Parity and the Big Mac, Federal Reserve Bank of St. Louis, 3-22
Taylor, M.,(2004).The Purchasing Power Parity Debate, Journal of Economic Perspectives,
Taylor, J., T. (2001). The Role of the Exchange Rate in Monetary Policy Rules, American Economic Review, Papers and Proceedings, 91, 263-267
Tobin, J. (1965), “Money and Economic Growth”, Econometrics (33), pp. 671-684
Vaskov.et al (2011) “Determinants of Lending Rates and Interest Rate Spreads”, South-Eastern European, published by Athens, Economic Research Workshop.
DOI: http://dx.doi.org/10.61426/sjbcm.v4i2.473
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.