The Central Bank of Kenya (CBK) has lowered the lending rate by 50 basis points to 10.75 percent from 11.25 percent, a move aimed at stimulating economic activity by making credit more affordable. Additionally, the Cash Reserve Ratio (CRR) was reduced by 100 basis points to 3.25 percent from 4.25 percent. The decision was announced following the Monetary Policy Committee (MPC) meeting held on February 5, 2025, where policymakers reviewed economic conditions both locally and globally before settling on the new rate.
The meeting took place against the backdrop of a recovering global economy, with projections indicating that global growth will improve to 3.3 percent in 2025 from 3.2 percent in 2024. This growth is primarily driven by strong economic performances in the United States, India, and the United Kingdom. However, concerns remain over geopolitical tensions, including the Russia-Ukraine war and conflicts in the Middle East, as well as uncertainties in global trade policies.
Despite these global risks, Kenya’s macroeconomic outlook remains stable. Inflation in the country stood at 3.3 percent in January 2025, slightly up from 3.0 percent in December 2024, but still below the midpoint of the 5 ± 2.5 percent target range. The stability was largely attributed to declining core inflation, which fell from 2.2 percent in December to 2.0 percent in January, driven by lower prices of essential commodities such as sugar, maize, and wheat products. However, non-core inflation rose to 7.1 percent, primarily due to seasonal price increases in food crops, particularly vegetables.
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The MPC also reviewed findings from the latest CEOs Survey and Market Perceptions Survey, which revealed growing optimism about Kenya’s economic prospects. Business leaders expressed confidence in a stable macroeconomic environment, a declining interest rate regime, and improved agricultural output due to favorable weather conditions. However, some concerns remain, particularly regarding subdued consumer demand and the high cost of doing business.
Despite previous reductions in the CBR, lending rates have only marginally declined, prompting CBK to take further steps to ensure banks pass on the benefits of lower borrowing costs to businesses and individuals. To enforce compliance, CBK has initiated on-site inspections of banks to ensure the implementation of the Risk-Based Credit Pricing Model (RBCPM). Under recently enacted amendments to the Banking Act, banks that fail to lower lending rates in line with reduced funding costs will face penalties.
The next MPC meeting is scheduled for April 2025, where further policy adjustments will be considered based on prevailing economic conditions.