NAIROBI, Kenya – Kenyans could soon access cheaper loans after the Central Bank of Kenya (CBK) lowered its benchmark lending rate by 25 basis points to 9.25 per cent, marking the first rate cut in 2025.
The CBK’s Monetary Policy Committee (MPC), chaired by Governor Kamau Thugge, said the move aims to stimulate private sector lending and support economic growth, while keeping inflation and the exchange rate stable.
“The Committee concluded that there was scope for a further easing of the monetary policy stance,” Dr Thugge said on Tuesday, noting that the cut would reinforce earlier measures meant to unlock credit to businesses and households.
Economy Holding Firm
The rate cut follows signs of resilience in Kenya’s economy, with gross domestic product expanding by 5.0 per cent in the second quarter of 2025 compared to 4.6 per cent a year earlier.
The CBK attributed the growth to a rebound in manufacturing and agriculture, alongside strong performance in transport, financial services, and the digital economy.
GDP growth is projected at 5.2 per cent this year and 5.5 per cent in 2026, though the bank warned of risks from geopolitical tensions and global trade uncertainties.
Recent surveys of CEOs and market players revealed continued optimism about business activity over the next 12 months, buoyed by improved agricultural output, stable prices, and stronger demand in tourism and exports.
Inflation Within Target
Inflation remained contained at 4.6 per cent in September, comfortably within the CBK’s target range of 5 ± 2.5 per cent.
Food inflation eased due to lower cereal and sugar prices, although vegetable costs rose slightly due to seasonal trends.
The MPC expects inflation to remain stable in the coming months, supported by steady energy prices and a firm shilling.
Stronger Credit Growth
Kenya’s banking sector remains stable, with improving asset quality and stronger lending trends.
Gross non-performing loans dropped to 17.1 per cent in September from 17.6 per cent in June, driven by recoveries in the construction, real estate, and hospitality sectors.
Private sector credit growth accelerated to 5.0 per cent in September from 3.3 per cent in August, reflecting renewed confidence among borrowers.
Average lending rates fell slightly to 15.1 per cent, down from 17.2 per cent in late 2024.
The CBK said the upcoming full rollout of the Risk-Based Credit Pricing (RBCP) model by March 2026 will make loan pricing more transparent and improve the link between monetary policy and bank lending rates.
Global and External Stability
Globally, the CBK noted that economic activity has remained firm, supported by strong U.S. demand and improving financial conditions, but warned that rising trade tensions and geopolitical conflicts could slow growth in 2026.
Kenya’s current account deficit widened slightly to 2.1 per cent of GDP in the year to August 2025, mainly due to higher imports of machinery and intermediate goods.
However, the CBK projects the deficit to narrow next year as exports and remittances rise.
Foreign exchange reserves stood at USD 10.8 billion, enough to cover 4.7 months of imports — a comfortable buffer against external shocks.
The MPC said it will continue monitoring inflation and global trends ahead of its next meeting in December.
“The Committee stands ready to take further action as necessary in line with its mandate,” Dr Thugge said.
