Relationship Between Domestic Debt and Interest Rate in Kenya

Abstract

The study sought to determine the relationship between domestic debt and interest rate in Kenya. There is limited empirical literature on the relationship between domestic debt and interest rate, this study seeks to fill the existing research gap by conducting a study to determine the relationship between domestic debt and interest in Kenya. The causal study design was employed in this research. Causal research suggests causal linkages between variables by observing existing phenomena and then searching back through available data in order to try to identify plausible causal relationships. The population for this study was 10 years period starting from year 2003 to year 2012. Secondary data from Central Bank of kenya was collected on the study variable, these include ,the domestic debt , interest rate , economic growth and private sector credit. Data analysis was done using inferential statistics. The study found that there was a positive relationship between domestic debt and interest rate, the study thus concludes that that domestic debt positively affects the interest rate in the country. The study established that there was a positive relationship between fiscal deficit and the country interest rate. The study further revealed that an increase in foreign exchange rate positively influenced increase in the interest rate in the country, thus the study concludes that foreign exchanges rate and fiscal debt positively influence the interest rate in the country. The study revealed that interest rate was negatively related to gross domestic product in the country, the study further revealed that private sector credit negatively influence the interest rate in the country, thus the study concludes that gross domestic product and private sector credit negatively influence the interest rate.