Central Bank of Kenya Governor Kamau Thugge. Photo | Kenya Banking Insights.
The Central Bank of Kenya (CBK) has lowered the Central Bank Rate (CBR) by 75 basis points to 10.00 percent, down from 10.75 percent, in a bid to stimulate credit to the private sector and support economic activity, while maintaining exchange rate stability.
The decision was made during the Monetary Policy Committee (MPC) meeting held on April 8, 2025, where members reviewed the effects of previous policy measures and evaluated current economic conditions both locally and globally.
The MPC noted that overall inflation remained within target, standing at 3.6 percent in March 2025, slightly up from 3.5 percent in February but still below the mid-point of the CBK’s target range of 5 ±2.5 percent.
Core inflation rose to 2.2 percent, driven by higher prices of processed food items, while non-core inflation dropped to 7.4 percent due to lower food and energy prices.
“The Committee concluded that there was scope for a further easing of the monetary policy stance to stimulate lending by banks to the private sector and support economic activity,” said CBK Governor Dr Kamau Thugge, who chairs the MPC.
In addition to lowering the CBR, the MPC also approved narrowing the interest rate corridor around the CBR to ±75 basis points from the previous ±150 basis points, a move aimed at enhancing interbank rate stability.
The interest rate on the Discount Window was similarly adjusted to 75 basis points above the CBR.
The Kenyan economy recorded slower growth in 2024, with real GDP estimated at 4.6 percent compared to 5.6 percent in 2023.
However, signs of recovery have emerged in early 2025, with GDP growth projected at 5.4 percent for the year, supported by strong performance in the agriculture and service sectors, and improving private sector credit growth.
Despite the easing inflation and signs of economic rebound, the MPC cited external risks, including global trade tensions, volatile oil prices, and geopolitical conflicts such as the Russia-Ukraine war and tensions in the Middle East, as factors that could affect the country’s economic outlook.
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On the external front, the balance of payments position improved significantly, with the current account deficit narrowing to 3.1 percent of GDP in the 12 months to February 2025, down from 3.3 percent the previous year.
This was attributed to higher exports, increased diaspora remittances, and reduced oil imports. CBK’s foreign exchange reserves stood at USD 9.93 billion, equivalent to 4.44 months of import cover.
The banking sector remained resilient, with adequate capital and liquidity. However, the non-performing loans ratio rose to 17.2 percent in February 2025, up from 16.4 percent in December 2024, largely due to challenges in the real estate, trade, and manufacturing sectors.
Commercial bank lending to the private sector showed modest growth, rebounding 0.2 percent in March after a contraction in February.
Surveys conducted in March 2025, including the Agriculture Survey and CEOs Survey, revealed optimism in business activity, citing stable macroeconomic
