Indeed, there are good reasons to believe that nonstandard tools helped the euro area overcome the predicament of the effective lower bound on nominal interest rates and to stimulate aggregate demand.5 At the same time, however, many, including myself, have repeatedly argued that highly accommodative monetary policy can produce severe side effects, in particular on productivity.6 In the presence of financial frictions, very low interest rate levels can contribute to the survival or new market entry of low-productivity firms by easing their financing constraints and by reducing incentives to repair their balance sheets.7 In other words, a highly accommodative monetary stance may contribute to creating an environment in which low-productivity firms have an incentive to engage in “defensive investment” – to prolong their survival rather than promote expansion and innovation.
As you are aware, a key goal of the Government of Kenya, as espoused in Vision 2030 is establishing Kenya as a premier financial services hub in the region with a wide range of competitive products and services.