CBK lowers base lending rate to 9.75% to spur borrowing

CBK building in Nairobi. /CBK

The Central Bank has lowered its base lending rate by 25 basis points to 9.75 per cent to spur borrowing by the private sector from commercial banks.

The decision was made during the Monetary Policy Committee (MPC) meeting held on June 10, 2025.

The Committee cited the need to support the recovery of private sector credit growth and bolster overall economic activity, while maintaining inflationary expectations within the target range and safeguarding exchange rate stability.

“In view of the prevailing macroeconomic conditions, the Committee concluded that there was scope for a further easing of the monetary policy stance,” said CBK Governor Kamau Thugge, who chairs the MPC.

“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.”

The MPC noted that overall inflation declined to 3.8 per cent in May from 4.1 per cent in April, remaining below the mid-point of the 5±2.5 per cent target range.

This was largely attributed to lower food and energy prices, including reductions in electricity tariffs.

While core inflation edged up slightly to 2.8 per cent, inflationary pressures were expected to remain contained in the near term.

Kenya’s economy grew by 4.7 per cent in 2024, down from 5.7 per cent in 2023, reflecting slower growth across most sectors.

However, improved performance indicators in early 2025 suggest a rebound, supported by resilient services and agriculture sectors, improved exports, and a recovery in private sector credit.

The GDP growth projection for 2025 has been revised to 5.2 per cent from 5.4 per cent, mainly due to external trade challenges.

Commercial bank lending to the private sector rose by 2.0 per cent in May, compared to 0.4 per cent in April and a contraction of 2.9 per cent in January.

The MPC said this turnaround aligns with a steady decline in average bank lending rates, which fell to 15.4 per cent in May from 17.2 per cent in November 2024.

“The committee will continue to closely monitor the impact of this policy decision, as well as developments in the global and domestic economy,” Thugge said.

“It stands ready to take further action as necessary in line with its mandate.”

The MPC affirmed its commitment to ensuring price and financial stability while supporting economic recovery.

The committee will reconvene in August 2025.