Fresh signal to banks to lower interest rates as CBR cut to 10 per cent
It also approved the narrowing of the width of the interest rate corridor around the CBR from the current ±150 basis points to ±75 basis points
The Monetary Policy Committee (MPC) has put pressure on banks to reduce lending rates by lowering the Central Bank Rate (CBR) by 75 basis points to 10.00 percent from 10.75 per cent.
During its meeting, which was chaired by Central Bank Governor Dr Kamau Thugge, the MPC noted that average commercial banks’ lending rates declined to 15.8 percent in March 2025, from 16.4 per cent in February and 17.2 percent in November 2024.
The MPC noted the ongoing implementation of the FY2024/25 Supplementary Budget I, and the proposed Supplementary Budget II which is expected to lower the fiscal deficit to 5.1 percent of GDP from 5.3 per cent of GDP in FY2023/24.
“The fiscal consolidation in the medium-term should reduce debt vulnerabilities while moving the present-value-of-debt to GDP ratio towards the target anchor of 55 percent,” Dr Thugge said.
He added that to enhance the effectiveness of the monetary policy implementation framework, the MPC approved the narrowing of the width of the interest rate corridor around the CBR from the current ±150 basis points to ±75 basis points.
This will enhance stability of the interbank rate and align the rate closer to the CBR. In line with this review, the Committee also approved the adjustment of the applicable interest rate on the Discount Window from the current 300 basis points above CBR to 75 basis points, which will be the upper bound of the interest rate corridor.
The Committee noted that overall inflation was expected to remain below the midpoint of the 5±2.5 per cent target range in the near term.
Further, Central banks in the major economies have continued to lower their interest rates, but at different paces depending on inflation and growth expectations and that average lending rates have been declining gradually since December 2024, but private sector credit growth remains subdued.
“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, while ensuring exchange rate stability. Therefore, the Committee decided to lower the Central Bank Rate (CBR) by 75 basis points to 10.00 per cent from 10.75 percent,” Dr Thugge said in a statement.
He said the MPC will closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to take further action as necessary in line with its mandate, adding the MPC will meet again in June.
The reduction of the CBR conforms with an outlook by the Kenya Bankers Association that there was still headroom to accommodate a further CBR cut to provide a stronger impetus and sustain the momentum for lending rate reductions in the market and unlock private sector credit growth.
