The Central Bank of Kenya (CBK) has reduced its benchmark interest rate by 25 basis points to 9.75% for the sixth consecutive time as the monetary authority continues efforts to support economic expansion and maintain macroeconomic stability.
In a statement released Tuesday, Governor Kamau Thugge said the Monetary Policy Committee (MPC) agreed there was room for further policy easing to sustain lending momentum and bolster private sector activity.
The rate cut brings the cumulative reduction in the central bank rate to 325 basis points since August 2024.
“The committee concluded that there was scope for a further easing of the monetary policy stance to augment the previous policy actions aimed at stimulating lending by banks to the private sector and supporting economic activity,” Thugge said.
The CBK’s latest decision comes amid benign inflationary conditions and a relatively stable macroeconomic environment.
Kenya’s annual inflation rate eased to 3.8% in May, down from 4.1% in April, remaining well below the central bank’s 5% midpoint target.
Core inflation, which excludes volatile food and fuel items, rose marginally to 2.8% in May from 2.5% in April.
Despite the monetary easing, Kenya continues to rank among countries with high real interest rates globally.
Governor Thugge noted that the current stance remains consistent with the objective of anchoring inflation expectations and preserving currency stability.
The Kenyan shilling has remained relatively steady, supported by robust foreign exchange reserves and improved current account fundamentals.
Foreign reserves currently stand at $10.8 billion, providing 4.75 months of import cover, one of the highest reserve levels among peer economies in the region.
The central bank expects the current account deficit to remain stable at 1.5% of GDP in 2025, slightly above the 1.3% recorded in 2024. The gap is expected to be fully financed by financial account inflows, further reducing pressure on external balances.
The CBK also highlighted improved trends in private sector credit. Commercial bank lending to the private sector rose by 2% in May, up from 0.4% in April, indicating a gradual pickup in credit demand following successive rate cuts.
However, the banking sector continues to grapple with rising credit risks, with the ratio of non-performing loans (NPLs) to gross loans increasing to 17.6% in April, up from 17.2% in February.
This was primarily driven by defaults in the trade, tourism and hospitality sectors as well as rising household delinquencies.
“The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios,” the CBK noted. Nonetheless, the elevated NPL ratio signals ongoing challenges in credit recovery across vulnerable segments of the economy.
The central bank revised its GDP growth forecast for 2025 to 5.2%, slightly lower than the previous estimate of 5.4%, citing persistent global risks including trade tensions involving the United States and ongoing geopolitical uncertainties.
Kenya’s economic outlook remains supported by contained inflation, steady exchange rate performance, and improving domestic credit flows.
The CBK’s policy trajectory continues to reflect a delicate balance between stimulating growth and safeguarding stability, particularly as global conditions remain volatile.
