The Central Bank of Kenya has decided to cut the Central Bank Rate (CBR) in a move to enhance credit accessibility and spur growth in the private sector. CBK Governor Kamau Thugge speaking at a past event. The decision came after the Monetary Policy Committee (MPC) met on February 5, 2025, and reviewed the outcomes of its previous decisions and measures. Kamau Thugge, CBK governor, stated that the MPC noted that overall inflation was expected to remain below the midpoint of the 5±2.5 percent target range in the near term, supported by a low and stable core inflation, low energy prices inflation, and exchange rate stability. “Additionally, central banks in the major economies have continued to lower their interest rates, but at different paces.
Further, the Committee noted that economic growth decelerated in 2024, and therefore there was scope for a further easing of the monetary policy stance to support economic activity, while ensuring exchange rate stability” read the statement signed by the governor. After considering various economic indicators the MPC decided to, Lower the Central Bank Rate (CBR) by 50 basis points to 10.75 percent from 11.25 percent. Reduce the Cash Reserve Ratio (CRR) by 100 basis points to 3.25 percent from 4.25 percent, to complement the lowering of the CBR, and support lowering of lending rates. 60% of businesses foresee stagnation in employment Will commecial banks loan lower interest rates? The CBK noted that despite previous adjustments to the CBR commercial banks did not lower their interest rates accordingly and urged banks to take further steps to lower them and stimulate private sector credit growth.
To ensure compliance with the Risk-Based Credit Pricing Model (RBCPM), the CBK said it has begun on-site inspections, with penalties set for banks that fail to pass on cost reductions in line with recent Banking Act amendments. Kamau further stated that the CEOs Survey and Market Perceptions Survey which were conducted ahead of the MPC meeting revealed improved optimism about business activity and economic growth prospects for the next 12 months. “The optimism was attributed to the stable macroeconomic environment reflected in low inflation and stability in the exchange rate, expected decline in interest rates which is expected to ease access to credit, favourable weather conditions which will continue to support agriculture, and lower global oil prices.
Nevertheless, respondents expressed concerns about subdued consumer demand, and high cost of doing business,” read the CBK statement. Impact of high interest rates Earlier the Kenya National Chamber of Commerce and Industry (KNCCI) had cited high interest rates on credit facilities as a major barrier to business growth and expansion. Similarly the Kenya Bankers Association ( KBA) had called on the CBK to cut the CBR further to enable banks reduce interest rates on commercial loans. The reduction is expected to enhance access to credit particularly in the private sector and consequently spur business growth and expansion, creating job opportunities.
by Elijah Ntongai
