The Central Bank of Kenya (CBK) has cut its benchmark rate to 8.75%, extending a record tenth consecutive easing move since August 2024 and taking borrowing costs to their lowest level since January 2023.
- •The 25-basis-point reduction came with inflation steady at 4.4% and private-sector credit growth accelerating to 6.4%, giving policymakers room to loosen further without unsettling prices or the shilling.
- •A central factor behind the latest cut is a sustained cleanup in bank balance sheets, with the lowest Non-performing loan level since before March 2024, with the last comparable reading at 14.8% in December 2023.
- •CBK said its revised Risk-Based Credit Pricing Model, due to be fully operational by March, should improve pass-through of policy cuts and make loan pricing more transparent.
Headline inflation has stayed below the 5% midpoint of the target range, while core inflation edged up modestly to 2.2% in January and non-core inflation eased to 10.3% on cheaper vegetables.
Growth has held up despite agricultural headwinds. Real GDP expanded 4.9% in the third quarter of 2025, led by industry and resilient services. CBK trimmed its 2025 growth estimate to 5.0% from 5.2% but still expects momentum to lift output to 5.5% in 2026 and 5.6% in 2027, assuming no major shocks from weather, trade policy, or geopolitics.
Bad loans turning decisively lower
.Gross non-performing loans fell to 15.5% in January 2026, down 100 basis points from 16.5% in November 2025 and more than 200 bps below the 17.4% peak reached in March 2025. This is the
The improvement marks a clear inflection after a period of stress that pushed NPLs from 14.8% in December 2023 to 17.6% in June 2025. Since that peak, banks have steadily repaired asset quality, with notable progress in real estate, manufacturing, trade, construction, and household lending.
Credit responding and markets adjusting
Lending to the private sector grew 6.4% in January, up from 5.9% in December and a sharp reversal from a 2.9% contraction a year earlier. Average lending rates eased to 14.8%, down from 17.2% in November 2024.
Short-term government securities have already begun to reflect easier policy, with yields on 364-day Treasury bills trending lower since October as liquidity conditions improved and banks priced in continued easing.
External buffers still solid
Kenya’s current account deficit widened to 2.4% of GDP in 2025 from 1.3% in 2024 as imports rose 9.1% against 6.1% export growth. Travel receipts and remittances increased modestly, and CBK expects the deficit to stabilize at 2.2% of GDP in 2026–27, fully financed by inflows. Foreign-exchange reserves stood at US$ 12.46 billion, equal to 5.37 months of import cover.
In a coordinated technical shift, the Monetary Policy Committee narrowed the interest-rate corridor to ±50 basis points around the Central Bank Rate and lowered the Discount Window to CBR plus 50 bps, steps designed to pull interbank rates closer to policy and sharpen transmission to bank lending.
By narrowing the policy corridor, CBK signaled a more precise steering of market rates toward the CBR, reducing volatility in KESONIA and tightening the link between policy and lending.
