The Central Bank of Kenya (CBK) has cut its base lending rate by 25 basis points to 9.75 per cent in a strategic move to boost private sector borrowing and invigorate economic activity. The decision was announced following the Monetary Policy Committee (MPC) meeting held on June 10, 2025, chaired by CBK Governor Kamau Thugge.
In a statement, the MPC said the rate reduction was warranted by prevailing macroeconomic conditions, including a drop in inflation and a positive shift in credit dynamics. “This is aimed at stimulating lending by banks to the private sector and supporting economic activity, while ensuring inflationary expectations remain firmly anchored, and the exchange rate remains stable,” Thugge noted.
Inflation dropped to 3.8 per cent in May from 4.1 per cent in April, staying below the mid-point of the CBK’s 5±2.5 per cent target range. The decline was driven by lower food and energy costs, including a reduction in electricity tariffs. Core inflation rose slightly to 2.8 per cent, but overall inflationary pressures are expected to remain subdued in the near term.
Kenya’s economy grew by 4.7 per cent in 2024, a decline from 5.7 per cent in 2023, largely due to weaker performance across various sectors. However, signs of a rebound in early 2025—driven by strong service and agriculture sector outputs, improved exports, and better private sector credit uptake—have led to cautious optimism. Nonetheless, the CBK has revised the 2025 GDP growth forecast downward to 5.2 per cent from 5.4 per cent, citing global trade uncertainties.
There are signs that the lower interest rate environment is already having an effect. Private sector credit grew by 2.0 per cent in May, up from 0.4 per cent in April and recovering from a 2.9 per cent contraction in January. Concurrently, average commercial bank lending rates have dropped from 17.2 per cent in November 2024 to 15.4 per cent in May 2025.
The MPC reaffirmed its commitment to price and financial stability and said it will reconvene in August 2025 to assess the economic impact of this policy shift.
