Monetary Policy And Private Sector Credit In Kenya
| dc.contributor.author | Maza, Edwin M. | |
| dc.contributor.author | Etyang, Martin N. | |
| dc.date.accessioned | 2025-10-23T08:40:20Z | |
| dc.date.available | 2025-10-23T08:40:20Z | |
| dc.date.issued | 2024-01 | |
| dc.description | Article | |
| dc.description.abstract | The Kenyan banking sector has made significant strides in boosting lending to the private sector, which contributed around 31 percent of Gross Domestic Product as of 2021, up from 19 percent in the 1990s. In the past decade, Kenya has enacted several monetary driven policy tools to lower the cost of private sector advances, including the interest rate ceilings that were implemented in September 2016. The relatively high cost of lending by financial corporations to individuals and businesses has been identified as one of the main obstacles to credit expansion in Kenya. To understand how private sector credit responds to monetary policy changes, this study's main goal was to research the influence of policy strategy on private sector lending. Specifically, the study purposed to explore the outcome of changes in the money supply and lending rates on private sector advances. The study is of significance as it examined the connection between Kenya's monetary policy and private sector lending with a view to understand how private enterprise lending responded to changes in money supply and interest rates. The analysis used secondary data, quarterly macroeconomic statistics 2010-2021 from the Central Bank of Kenya and Kenya National Bureau of Statistics and applied a vector error correction model. A unit root test was performed to check for stability, and a Johansen cointegration assessment was performed to establish presence of short- or long-run relationship among the variables affecting private sector lending. The findings of this study ascertained that there exists a long-term relationship between monetary policy and private sector credit in Kenya. To determine how changes in interest rates affect growth of private sector, the research findings show that interest rates and private sector credit are inversely related in the long-term. In addition, the results show that the growth of money supply affects growth of private sector credit that the growth of money supply has a positive impact on the growth of credit to the private sector as per the long-run estimation. This outcome, therefore, shows that, a reduction in the money supply causes a decrease in private sector credit, and vice versa. The study has demonstrated that monetary policy and the expansion of private sector loans are closely related over time. It is, therefore, unfeasible to underestimate the central bank's influence over the economy's long run liquidity management through interest rates and money supply by extension, which impacts several macroeconomic indicators. By implementing accommodative monetary policies that directly affect cost of credit to individuals and firms and, additionally, encourage investment through borrowing by fostering confidence in the nation's financial sector of the economy, the Central Bank of Kenya plays a crucial role in creating the most favorable conditions to foster credit advances to the private sector. | |
| dc.identifier.issn | 2321-5933 | |
| dc.identifier.uri | https://ir-library.ku.ac.ke/handle/123456789/31807 | |
| dc.language.iso | en | |
| dc.publisher | IOSR Journals | |
| dc.title | Monetary Policy And Private Sector Credit In Kenya | |
| dc.type | Article |