|Otieno, Ojala Daphen
|Ongiyo, Charle Obunde
|After the liberalization of interest rates in Kenya in 1992, there has been an upward trend in the interest rates.
Therefore, there is a need to investigate the factors influencing lending interest rates and their impacts on the
general performance of the economy. This study examined various factors influencing lending interest rates and
their impacts on the general performance of the economy. Specifically, it: investigates the effects of international
interest rates on local lending interest rates in Kenya and determines the effects of budget deficit financing on
lending interest rates. Annual secondary time series data spanning from 1980 to 2010 obtained from the World
Bank annual reports, IMF annual reports, annual government publications and reports and other relevant
publications were used. This data was parametrically analyzed using EVIEWS to present descriptive and
inferential statistics. Unit roots, cointergration tests and the Error Correction Model were carried out to
investigate the dynamic behavior of the model. Results of the study indicates that the impact of budget deficit
and inflation on interest rates in Kenya were positive and significant. This implies that any attempt to control the
rise in interest rates must pay attention to expansionary macroeconomic policies and reduce the budget deficit.
Such policies should address structural and non-structural causes of inflation. For instance, it involves enacting
policies to reduce the cost of doing business in Kenya.
|Journal of Economics and Sustainable Development
|Attribution-NonCommercial-ShareAlike 3.0 United States
|Lending rates, Economic growth and Error Correction Model
|Lending Rates and its impact on Economic Growth in Kenya