| dc.description.abstract | Interest rates charged by commercial banks in Kenya are highly unpredictable and volatile.
These has elicited sharp reactions most of which is need to place ceiling on the maximum rate of
interest that commercial banks will be allowed to charge. There are competing theories of
interest rate that tries to explain the behavior or shape of interest curve. My objective was to
identify which of the competing theories of structure interest rate mostly used by commercial
banks in Kenya.
Primary data was collected using likert scale questionnaire and send though emails to
respondents. The responses were then analyzed using mean and standard deviation.
According to the data analyzed, expectation theory had the least standard deviation thus
portrayed consistency across the respondents as a widely used theory to determine the rate of
interest by Kenyan commercial banks.
Kenyan parliament are continually focusing on setting the ceiling on the rate of interest rate on
the basis that they are arbitrary figures arrived at by banks to attain maximum profit on their
landings. My project proves the contra, that the rate of interest are arrived at on careful analysis
of economic trends, business cycles and other forecast variables of term structure of interest rate.
Thus the forecast should be on the commercial banks to best use the term structure of interest
rate especially the expectation theory to forecast future rates thus reducing volatility and interest
rate risk and advice their clients on the implication of this forecast on their repayment schedule. | en |
