The effects of liberalizing interest rates on deposits and advances in Kenya
Abstract
Until June 1991, the government maintained control on interest rates and was instrumental to setting
the maximum nominal interest rates on loans and minimum interest rates on savings, mandatory credit
ceiling, compulsory reserves requirements for the bank and controls over allocation of credit. The study
was geared towards establishing the effects of interest rates on deposits and advances as well as coming
up with a trend for interest rates for the period before and after liberalization.
The data was obtained from statistical bulletins published by the CBK for the period 1987-2007. It was
subjected to linear and non-linear regression procedures to determine the relationship and effects of
deposits, advances and the risk free rate on the deposit and lending rate.
It was established that for both regimes a positive correlation existed between deposits, risk free rate,
advances and the deposit and lending interest rates that is as one rises the other rises too. However for
the period before liberalization there was a more significant relationship as opposed to the period after.
It was recommended that adopting the regulatory regime in Kenya will have more impact in pursuing
the objective of increasing deposits and advances in real terms. This was supported by the strong
positive correlation for the period before liberalization. -.
Citation
Masters Of Business Administration (MBA) Degree, University of NairobiPublisher
University of Nairobi School of Business
Description
A management research project submitted in partial
fulfilment of the requirements for the Degree Of
Master of Business Administration (MBA), Faculty of
Commerce, University of Nairobi