The Impact of central bank of Kenya rates on Market interest rates of Commercial Banks in Kenya
Financial liberalization and deepening entails a variety of measures such as liberalization of interest rates, establishing freedom of entry into and procedures for orderly exit from the banking industry, reducing reserves and liquidity requirements, eliminating or minimizing credit allocation directives, eliminating preferential credit at concessional interest rates, and removing controls on the capital account of the balance of payments. The objective of this study was to investigate the impact of Central Bank of Kenya rates on market interest rates of commercial banks in Kenya. The research design adopted in this study was descriptive research design. In addition the researcher carried out a correlation study. The study was to determine whether or not Central Bank Rates and market interest rates of Commercial Banks in Kenya are correlated. Further, the researcher sought to determine which variable mainly determined the market interest rate of commercial banks. The population of study consisted of all the 43 commercial banks that were fully registered with Central Bank of Kenya by December 2011. Both primary and secondary data were collected for the study. Primary data was collected through the use of a structured questionnaire. Secondary data was derived from various sources which include the annual financial statement and data from the CBK. Data analysis was done using SPSS to generate quantitative reports which were presented in the form of tabulations, percentages, mean and standard deviation. The results of the survey were presented using tables. The study further correlated the variables using the Pearson correlation moment product. From the findings it was indicated that there was improvement in the allocation of credits in the banks; the commercial banks developed a healthy money market and that the banks used indirect framework that allow the Central Bank to influence the general level of interest rates through open markets opinions. The study concludes that there was a positive significant relation between market interest rate and market power and competition (p=0.042), effect of foreign ownership (p=0.031) and inflation rates (p=0.091). The findings conclude that Central Bank of Kenya rates influenced interest rates of Commercial Banks in Kenya.