The Central Bank of Kenya (CBK) has reduced its base lending rate by 50 basis points to 10.75 percent, down from 11.25 percent, effectively making loans cheaper.
The Monetary Policy Committee (MPC), chaired by CBK Governor Kamau Thugge, also lowered the Cash Reserve Ratio (CRR) by 100 basis points to 3.25 percent from 4.25 percent to support further reductions in lending rates.
“With these measures, banks are expected to take the necessary steps to lower their lending rates further, stimulate growth in credit to the private sector, and support economic activity,” Thugge said.
CBK’s foreign exchange reserves currently stand at $9.07 billion, equivalent to 4.6 months of import cover, providing a buffer against short-term shocks in the foreign exchange market.
In a statement, Thugge noted that the lending rate adjustment aligns with trends in major economies, where central banks have been easing rates.
He added that the MPC lowered both the lending rate and CRR to support economic activity while ensuring exchange rate stability, recognizing that Kenya’s economy slowed down in 2024.
“The MPC noted that the reduction in the CRR will release additional liquidity to banks. This is expected to lower the cost of funds and lending rates, thereby supporting credit growth to the private sector,” Thugge said.
However, the committee expressed concern that despite significant reductions in the Central Bank Rate (CBR) since August 2024, lenders have only marginally lowered their interest rates.
To ensure compliance with the Risk-Based Credit Pricing Model (RBCPM), Thugge said CBK has begun on-site inspections of banks to verify that they are adjusting their rates accordingly.
“Under the recent amendments to the Banking Act, any bank that fails to pass on the benefits of reduced cost of funds to borrowers will face penalties as prescribed by law,” Thugge warned.
He added that the MPC will closely monitor the impact of these policy measures, as well as global and domestic economic developments, and take further action as needed when it meets next in April.
Meanwhile, the MPC noted that Kenya’s overall inflation rose slightly to 3.3 percent in January 2025, up from 3.0 percent in December 2024. However, inflation is expected to remain within the target range of 5±2.5 percent in the near term.
Globally, the committee observed that headline inflation has moderated, though the pace of decline has slowed in major economies due to persistent core inflation.
The MPC also projected that global economic growth will improve to 3.3 percent in 2025, up from an estimated 3.2 percent in 2024.
