UPDATE 1-Kenya's parliament approves retaining interest rate cap

The Kenyan parliament has voted to retain the cap on commercial interest rates that the International Monetary Fund has insisted must be scrapped or modified in return for a new standby arrangement.

Lawmakers also voted to delay a proposed 16 percent tax on petroleum products for two more years, citing the high cost of living -- a move that will be a blow to government efforts to raise revenues through higher taxes.

The cap, introduced in September 2016, was aimed at helping small traders access capital at affordable rates but has had the opposite effect, with banks saying they cannot price risk to the small and medium enterprise (SMEs) properly while the cap is in place. As a result lending to the private sector fell from 9.3 percent in 2016 to 2.4 percent last year.

In June, Finance Minister Henry Rotich proposed repealing the interest rate cap, a move cheered by bankers. But lawmakers have continued to insist they are not ready to remove the upper limit of commercial lending rates at 4 percentage points above the central bank rate.

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