The Central Bank of Kenya (CBK) has lowered its base lending rate to 9.50 per cent from 9.75 per cent, marking a 25-basis-point reduction aimed at stimulating private sector lending and supporting economic activity.
The decision, announced by the Monetary Policy Committee (MPC) after its August 12 meeting, was driven by stable inflation, a resilient economy, and a steady exchange rate. CBK Governor Kamau Thugge said the easing of the monetary policy stance seeks to augment earlier measures aimed at enhancing credit flow to businesses.
“Inflationary expectations remain anchored, and the exchange rate has been stable. The MPC will monitor the impact of this policy and stands ready to act if necessary,” Thugge said.
Inflation stood at 4.1 per cent in July 2025, slightly up from 3.8 per cent in June, remaining well below the 5±2.5 per cent target. Core inflation edged up to 3.1 per cent due to higher processed food prices, while non-core inflation rose to 7.2 per cent on account of energy costs.
Economic growth remains on track, with GDP expanding by 4.9 per cent in Q1 2025, driven by strong agriculture and a rebound in industrial activity. Growth is projected at 5.2 per cent in 2025 and 5.4 per cent in 2026.
The current account deficit narrowed to 1.6 per cent of GDP in the year to June, supported by higher goods and services exports, robust diaspora remittances, and increased forex reserves now covering 4.8 months of imports.
The banking sector remains stable, with strong liquidity and capital buffers. Non-performing loans held at 17.6 per cent, while private sector credit growth rose to 3.3 per cent in July, aided by falling interest rates now averaging 15.2 per cent, down from 17.2 per cent in late 2024.
Globally, growth forecasts for 2025 have been upgraded to 3.0 per cent, though uncertainties from geopolitical tensions and volatile commodity prices persist.
The MPC will reconvene in October 2025 to assess developments and determine the next policy steps.
