The Effect of Macroeconomic Variables on Interest Rate Spread in the Commercial Banking Sector in Kenya

Abstract

The study sought to establish the effect of macroeconomic variables on interest rate spread in the commercial banking sector of Kenya. Descriptive research design was used. Secondary data were collected from the first quarter in 2006 to the second quarter of 2017 a period of 10.5 years. This data was collected from the Central Bank of Kenya statistics and Kenya National Bureau of Statistics database. This data on IRS and macroeconomic variables studies was regressed in a multiple linear regression model through SPSS V 21.0, which established statistically insignificant negative relationship between repo and IRS. It also established statistically significant positive relationship between CBR and foreign exchange and IRS. There was statistically insignificant positive relationship between 90 days T-bill, inflation and GDP and IRS. There was statistically insignificant negative relationship between repo and IRS. The recommendation of the study is that the government through CBK in order to ensure increased financial intermediation and lowering the cost of funds should anticipate to controlling macroeconomic fundamentals more efficiently particularly foreign exchange and CBR as major tools of managing high IRS. The open market activities by the government should not be used as main tool to controlling the cost funds is also a study recommendation.