Kenya’s Inflation Remains Subdued as Central Bank Cuts Rates for Longest Easing Cycle

The Central Bank of Kenya (CBK) has extended its longest uninterrupted easing cycle to support economic growth and stimulate private-sector lending.

The apex bank announced a reduction in the benchmark interest rate to 9.5% from 9.75%.

This move, effective immediately, matches the median estimate of six economists in a Bloomberg survey and comes amid subdued inflationary pressures.

Governor Kamau Thugge, in a statement issued on Tuesday, said the decision was aimed at augmenting previous monetary policy actions designed to enhance lending by banks to the private sector and boost overall economic activity.

The CBK’s strategy also focuses on maintaining anchored inflation expectations and ensuring a stable exchange rate environment.

“The MPC [Monetary Policy Committee] decision to reduce the rate is part of ongoing efforts to stimulate private-sector lending, support business activity, and stabilize inflationary pressures,” Governor Thugge stated. “We remain confident that inflation will stay within the target range, supported by lower food prices, stable energy costs, and exchange rate stability.”

Kenya’s inflation rate has remained well below the 5% midpoint of the CBK’s target range since June 2024.

In July, the annual inflation rate accelerated slightly to 4.1%, up from 3.8% in June, while core inflation, which excludes volatile food and energy prices, edged up to 3.1% from 3% the previous month.

Despite this uptick, inflation remains firmly under control, thanks to continued price stability in essential sectors.

The Kenyan economy has faced a series of challenges this year, including a sluggish business environment influenced by ongoing protests, the lingering effects of global trade tariffs, and global inflationary pressures.

However, CBK’s policy response, which has seen a cumulative 350-basis-point reduction in rates since August 2024, is in line with other African nations also pursuing easing cycles.

Economies such as South Africa, Mozambique, Lesotho, and Sierra Leone have all enacted similar rate cuts to bolster economic resilience.

The private sector has responded positively to the rate cuts, with commercial bank lending to the private sector increasing to 3.3% in July, compared to just 2.2% in June. This growth comes at a time when business activity is beginning to show signs of recovery.

In addition, Kenya’s foreign-exchange reserves rose to $10.96 billion in July, from $10.8 billion in June, bolstered by farm exports and strong remittance inflows from the Kenyan diaspora.

CBK’s monetary policy actions are expected to help mitigate the impact of external shocks, including the U.S. trade tariffs, which imposed a 10% levy on Kenyan exports to America.

This policy decision also comes at a time when Kenya’s current account deficit narrowed to 1.6% of GDP in the year through June, down from 1.8% a year earlier.

Looking ahead, the Central Bank is optimistic about the economic outlook, with projections indicating a 5.2% growth rate for 2025 and 5.4% for 2026.

The growth is expected to be driven by the resilience of key sectors, including agriculture, services, and the ongoing recovery in industry.

With the CBK’s proactive monetary measures, Kenya is positioning itself for a gradual economic recovery, with inflation remaining under control and the private sector gaining momentum as the country navigates the challenges of 2025.