The Central Bank of Kenya (CBK) cut its benchmark interest rate for a ninth consecutive meeting on Tuesday, marking the longest monetary policy easing streak in its history, as policymakers moved to support economic growth amid stable inflation and robust external buffers.
- •The Monetary Policy Committee (MPC) lowered the Central Bank Rate (CBR) by 25 basis points to 9.00%, down from 9.25%.
- •The decision extends a cycle of rate reductions aimed at stimulating credit to the private sector while inflation remains comfortably within the government’s target band.
- •While the domestic backdrop appears favorable, the committee flagged persistent external risks, including elevated global trade policy uncertainty, geopolitical tensions, and the potential impact of adverse weather on agriculture.
Inflation Anchored, Prices Stable
Overall inflation eased to 4.5% in November, remaining below the midpoint of the official 5.0% ± 2.5 percentage point target range. Core inflation, which strips out volatile food and energy items, fell to 2.3%, largely due to lower prices for processed foods like maize flour and sugar.
While non-core inflation edged up to 10.1%, driven by higher costs for vegetables such as tomatoes and onions, the MPC expects headline inflation to stay near the target midpoint in the near term.
Shilling Stability and Strong Reserves Bolster Policy Space
The Kenyan shilling has held firm below the 130 level against the U.S. dollar for several weeks, a stability highlighted by the MPC as a key factor allowing for continued policy support. The bank’s foreign exchange reserves climbed to $12.092 billion in December, sufficient to cover 5.25 months of imports—the highest buffer in recent months.
“The current account deficit widened modestly to 2.2% of GDP in the twelve months to October, but remains manageable and is expected to stay around 2.3% in 2025 and 2026,” the MPC stated in its release.
Growth Picks Up, Credit Conditions Improve
Recent economic data point to broadening momentum. Real GDP grew by 4.9% in the first half of 2025, prompting the CBK to upgrade its full-year growth forecast to 5.2%, with a further rise to 5.5% anticipated in 2026. Resilience in agriculture and services, alongside a recovery in industry, underpins the improved outlook.
Lending to the private sector expanded by 6.3% year-on-year in November, up from 5.9% in October, reflecting a sustained recovery from negative growth earlier in the year. Average commercial bank lending rates declined to 14.9%, down from 17.2% a year earlier. The ratio of non-performing loans also improved, falling to 16.5% from 16.7% in October.
Transition to New Pricing Framework
A key focus of the committee’s deliberation was the upcoming transition to a revised Risk-Based Credit Pricing Model (RBCPM) for the banking sector, set to be fully operational by March 2026. The MPC expects the new framework to improve the transmission of policy rate decisions to commercial lending rates and enhance transparency in loan pricing.
The shift is seen as crucial for ensuring that further reductions in the CBR more directly translate into lower borrowing costs for businesses and households.
