The Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) has cut the Central Bank Rate (CBR) from 12% to 11.25% following its meeting on December 5, 2024. The decision aims to support economic activity, maintain exchange rate stability, and anchor inflation expectations amidst evolving global and domestic economic conditions.
The MPC noted an improved global growth outlook, with projections for 2024 and 2025 at 3.2%, supported by strong performance in the United States, India, and the United Kingdom. However, persistent geopolitical tensions, including conflicts in the Middle East and the Russia-Ukraine war, pose risks to this growth trajectory.
Global inflation has been on a decline, with major central banks gradually reducing interest rates. While international oil prices have moderated, the risk of price volatility remains high due to ongoing geopolitical uncertainties. Meanwhile, food inflation globally has increased, driven by higher edible oil prices.
Kenya’s inflation rate stood at 2.8% in November, marginally higher than October’s 2.7%, and remained well below the target range midpoint of 5%. Food inflation rose slightly to 4.5% in November from 4.3% the previous month, attributed to increased cooking oil prices. Fuel inflation stayed negative at -1.6%, reflecting lower electricity and fuel costs.
Non-food non-fuel (NFNF) inflation eased to 3.2% in November from 3.3% in October, reflecting subdued demand pressures. Overall inflation is expected to remain below the target range midpoint, supported by favorable weather conditions, improved food supplies from ongoing harvests, and stable exchange rates.
Kenya’s economic growth slowed in the first half of 2024, with real GDP growing at an average rate of 4.8%, compared to 5.5% in the same period of 2023. This deceleration was observed across most sectors of the economy. Despite this, the economy is projected to grow by 5.1% in 2024 and 5.5% in 2025, driven by resilience in key service sectors, agriculture, and improved exports.
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The November 2024 Agriculture Sector Survey indicated that inflationary pressures are expected to remain low in the coming months due to favorable weather, stable exchange rates, and declining fuel prices. However, seasonal factors could lead to moderate increases in the prices of certain food items during December.
The MPC observed that inflation remains well-anchored, with stable NFNF inflation and easing demand pressures. Additionally, central banks in advanced economies continue to lower interest rates gradually. These factors, coupled with the economic slowdown in the first half of 2024, provided room for a more accommodative monetary policy stance to stimulate economic activity.
The MPC highlighted that short-term government security rates had declined in line with the CBR, but commercial banks had not proportionately reduced their lending rates. The MPC urged banks to lower lending rates to encourage credit flow to the private sector, which is critical for economic recovery.
The MPC will closely monitor the impact of its measures and developments in the global and domestic economy. The next meeting of the MPC is scheduled for February 2025.