NAIROBI, Kenya- Kenya Bankers Association (KBA) is calling on the Central Bank of Kenya (CBK) to cut its benchmark lending rate at the upcoming Monetary Policy Committee (MPC) meeting on August 12, citing a combination of anchored inflation at 4.1%, fragile economic growth at 4.9% in Q1, weak private sector credit growth, and persistently high non-performing loans (NPLs) at 17.6%.
In a research note released this week, the association said that despite signs of resilience in some sectors, Kenya’s economy remains too fragile to withstand tight monetary conditions.
“Given weak credit growth and fragility in economic activity amidst anchored inflation pressure, there is scope for a rate cut,” the report stated.
KBA argues that inflationary risks are currently well contained, with July’s 4.1% headline inflation safely within the CBK’s target range of 2.5–7.5%.
Core inflation remained stable at 3.1%, suggesting subdued demand-driven pressure. Additionally, international commodity price trends particularly in fuel have been generally favorable.
The association’s call comes amid sluggish credit recovery, despite easing lending rates.
Average commercial bank lending rates declined to 15.4% in May from 17.2% in November 2024.
However, credit to the private sector has grown modestly, rising only 2.0% in May after negative growth earlier in the year.
The reluctance by borrowers is largely attributed to poor asset quality in the market and investor caution amid expectations of lower rates.
At the same time, KBA notes the high NPL ratio standing at 17.6% as of April is being driven by stress in real estate, trade, manufacturing, and personal lending sectors.
The banking industry remains adequately capitalized and liquid, but structural impediments continue to weaken the transmission of monetary policy signals.
Kenya’s currency has remained relatively stable, trading at Sh129.24/USD as of August 1, supported by $10.7 billion in foreign exchange reserves and sustained diaspora remittances.
This stability, coupled with falling global interest rates especially from the U.S.
According to KBA,Federal Reserve and European Central Bank provides room for CBK to adjust policy without risking capital flight or currency volatility.
“The external sector performance depicts resilience, and with a favorable external interest rate differential, the conditions are conducive for a policy rate cut,” KBA noted, adding that a reduction in the Central Bank Rate (CBR) would help unlock credit flows and spur economic activity.
The call for a rate cut also comes as Kenya’s government aims to address its fiscal position, with expectations that pending bills will be cleared to ease pressure on businesses and improve loan performance.
The MPC is expected to weigh these dynamics at its August 12 meeting as it sets the tone for the second half of the year.
