NAIROBI, Kenya – The Central Bank of Kenya (CBK) has cut its benchmark lending rate by 50 basis points to 10.75 percent, signaling an effort to make borrowing cheaper and stimulate credit growth in the economy.
The decision, announced by the Monetary Policy Committee (MPC) chaired by CBK Governor Kamau Thugge, also includes a reduction in the Cash Reserve Ratio (CRR) from 4.25 percent to 3.25 percent.
The move is aimed at freeing up liquidity for banks to encourage lending to the private sector.
“With these measures, banks are expected to take the necessary steps to lower their lending rates further, stimulate credit growth, and support economic activity,” Thugge stated.
Press release: Monetary Policy Committee Meeting
The CBK’s foreign exchange reserves currently stand at $9.07 billion, equivalent to 4.6 months of import cover, providing a buffer against potential short-term market shocks.
Pressure on Banks to Lower Lending Rates
Despite previous reductions in the benchmark rate since August 2024, commercial banks have been slow to translate these cuts into lower lending rates for borrowers.
The MPC noted this concern and warned that banks failing to pass on the benefits of reduced costs of funds will face penalties under newly amended banking laws.
“To ensure compliance with the Risk-Based Credit Pricing Model (RBCPM), CBK has commenced on-site inspections of banks. Any lender failing to adjust rates accordingly will face penalties as per the Banking Act,” Thugge warned.
Inflation and Global Trends
Meanwhile, inflation in Kenya rose slightly to 3.3 percent in January 2025 from 3.0 percent in December 2024 but remains within the CBK’s target range of 5±2.5 percent.
Globally, headline inflation has been moderating, though at a slower pace, due to persistent core inflation in major economies.
The MPC noted that global economic growth is on track to improve to 3.3 percent in 2025, up from an estimated 3.2 percent in 2024.
CBK has committed to closely monitoring the impact of these policy changes and will take further action if necessary when the MPC convenes again in April.
