EFFECT OF INTEREST RATES ON ECONOMIC GROWTH IN KENYA

Abstract: The study sought to investigate interest rates effects on Kenyan economic growth. Specifically, the study assessed lending interest rates and central bank rates effects on economic growth. The study reviewed rate of interest classical theory, loanable funds theory, Keynes Liquidity Preference Theory, theory of pricing and the Solow Growth Model. Research Design embraced in the study was longitudinal. This study was anchored on Solow’s Growth model. Data on central bank rates, lending interest rates and economic growth were obtained from financial reports publicized by the central bank. Secondary data collected was for a period ranging from 2001 to 2020 and recorded in a data collection sheet designed in excel. Appropriateness of data was assessed through diagnostic tests which included multicollinearity, heteroscedasticity and autocorrelation in regard to regression analysis assumptions. Descriptive statistics such as central tendency measures, inferential statistics, correlation and regression analysis were involved in the data analysis. The results revealed that commercial banks’ lending interest rates during study period was higher than the rates by central bank. The results showed that lending rate of interest depicted positive but statistically insignificant correspondence with GDP while central bank rates depicted positive and significant correspondence with GDP. The combined model results however showed that the model is significant hence interest rates significantly affect economic growth. Following study’s findings, a conclusion drawn was that effects of interest rates on growth in the economy was significant. The study concludes that commercial banks’ lending interest rates depicts positive but have insignificant effects on growth in the economy. In addition, the study concludes that central banks rates have a positive and affects growth in the economy significantly.

Keywords: Interest Rates, Economic Growth, Lending Interest Rates and Central Bank Rates.

Title: EFFECT OF INTEREST RATES ON ECONOMIC GROWTH IN KENYA

Author: Wilson Mwangi Macharia, Samuel Muthoga

International Journal of Recent Research in Commerce Economics and Management (IJRRCEM)

ISSN 2349-7807

Vol. 10, Issue 1, January 2023 - March 2023

Page No: 22-28

Paper Publications 

Website: www.paperpublications.org

Published Date: 13-January-2023

DOI: https://doi.org/10.5281/zenodo.7533941

Paper Download Link (Source)

https://www.paperpublications.org/upload/book/EFFECT%20OF%20INTEREST%20RATES%20ON%20ECONOMIC-13012023-2.pdf