In a move aimed at stimulating economic growth and enhancing private sector lending, the Central Bank of Kenya (CBK) has reduced its benchmark Central Bank Rate (CBR) by 75 basis points to 10.0%. This marks the fifth consecutive rate cut from the previous decade-high rate of 13%.
The Monetary Policy Committee (MPC) of the CBK attributed this decision to the sustained ease in inflation, with overall inflation standing at 3.6% in March 2025, slightly up from 3.5% in February, but still well within the target range of 2.5% to 7.5%. Despite a gradual decline in average lending rates since December 2024, private sector credit growth remains subdued, prompting the need for further monetary easing.
In addition to lowering the benchmark rate, the CBK has narrowed the interest rate corridor around the CBR from ±150 basis points to ±75 basis points. This adjustment aims to enhance the stability of the interbank rate and align it more closely with the CBR. Consequently, the discount window rate has been reduced to 75 basis points above the CBR, down from the previous 300 basis points.
These policy changes are expected to make borrowing costs more stable and predictable, thereby encouraging banks to lower their lending rates and increase credit extension to the private sector. The CBK has expressed its commitment to closely monitor the impact of these measures and stands ready to take further action as necessary to support economic activity.
The next MPC meeting is scheduled for June 2025, where the committee will assess the effectiveness of the current policies and make adjustments as deemed appropriate.
