The Central Bank of Kenya (CBK) has cut its base lending rate to 10%, marking a 75 basis point drop from the previous 10.75%. The decision, announced following a meeting of the Monetary Policy Committee (MPC), is aimed at boosting credit to the private sector and giving the economy a much-needed lift.
The rate cut comes at a time when inflation in the country remains firmly under control and lending rates are gradually easing. According to the CBK, the average lending rate by commercial banks dropped to 15.8% in March from 16.4% in February, continuing a downward trend since November last year.
“The Committee concluded that there was scope for a further easing of the monetary policy stance to stimulate lending by banks to the private sector and support economic activity, while ensuring exchange rate stability.” said the MPC in a statement.
The move is expected to encourage banks to lend more to businesses and households, which in turn could help spur economic growth. Private sector credit had shown modest growth of 0.2% in March, reversing a 1.3% contraction in February, helped in part by a stronger shilling and declining interest rates.
Global Risks, Local Gains
The rate cut comes amid renewed global economic uncertainty. While 2024 marked a period of steady recovery, thanks largely to strong performances in the United States and India, the outlook for 2025 is far less certain. Trade tensions have resurfaced following fresh U.S. tariffs and retaliatory measures by key trading partners, raising fears of a potential slowdown. At the same time, geopolitical risks remain high, with ongoing conflicts in the Middle East and the Russia-Ukraine war continuing to threaten global stability.
Read: Banks that Fail to Lower Lending Rates will Face Penalties, CBK Announces
Even so, Kenya’s economy has shown signs of resilience. Inflation stood at 3.6% in March, just a notch above February’s 3.5%, but still comfortably below the CBK’s target ceiling of 7.5%. Food and fuel prices have eased, electricity costs are down, and the local currency has remained relatively stable. The central bank expects inflation to stay within target in the near term.
Economic growth, however, slowed last year. Kenya’s GDP grew by 4.6% in 2024, down from 5.6% in 2023, dragged by weaker performance across several sectors. But CBK remains optimistic about a rebound in 2025, projecting 5.4% growth on the back of stronger service and agriculture sectors, improved exports, and increased credit uptake.
External Position Strengthens
On the external front, Kenya’s current account deficit narrowed to 3.1% of GDP in the year to February 2025, compared to 3.3% the previous year. Exports were up by 13.1%, helped by strong demand for agricultural goods, while diaspora remittances rose by 14.5%. The overall balance of payments recorded a healthy surplus of $1.38 billion.
CBK’s foreign exchange reserves stand at $9.93 billion, enough to cover 4.44 months of imports.
Banking Sector Solid, But NPLs Still High
The banking sector remains stable, with solid liquidity and capital buffers. But the share of non-performing loans (NPLs) continues to be a concern, rising to 17.2% in February from 16.4% in December. The increase was mainly seen in sectors like real estate, trade, and manufacturing.
Despite this, banks have made adequate provisions for bad loans and remain in good health overall.
Read: 14 Kenyan Banks Ignore CBK’s Order to Cut Loan Rates
Tighter Controls for Stability
The MPC further announced a narrowing of the interest rate corridor around the base rate, from 150 to 75 basis points, to further strengthen its monetary policy framework. It also revised the Discount Window rate, bringing it in line as the upper limit of this corridor. These changes are expected to bring more stability to the interbank lending market.
The CBK said it will continue to monitor economic developments and is ready to take further action if needed. The next MPC meeting is scheduled for June 2025.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.