The Central Bank of Kenya (CBK) lowered its benchmark lending rate to 11.25% from 12.00% this week, signaling a shift to a more accommodative monetary policy to support economic growth amid slowing activity.

The rate cut is aimed at reducing borrowing costs to boost credit uptake by businesses and consumers, the CBK said. Inflation remains within the target range of 5%, plus or minus 2.5%, providing room for the monetary easing.

The decision aligns with a global trend of central banks cutting rates to spur growth amid muted inflationary pressures. Kenya’s Monetary Policy Committee expressed confidence in the economy’s fundamentals, citing a stable exchange rate, improved food supply, and declining fuel prices as factors reducing inflationary risks.

The CBK’s move comes as the government seeks to revitalize economic activity after months of subdued performance across key sectors.
While the MPC’s rate cut creates an enabling environment for lower lending costs, the effectiveness of this measure depends heavily on the responsiveness of commercial banks.

The Committee noted that while short-term rates on government securities have adjusted downward in line with the CBR, banks have yet to reduce their lending rates proportionately.

This lag risks undermining the intended stimulus to the private sector, particularly for SMEs and other key drivers of economic growth. By urging banks to align their rates with the lower CBR, the CBK is pushing for a more inclusive transmission of monetary policy benefits to businesses and households.