A significant resurgence in lending by commercial banks to the private sector has emerged as a pivotal factor behind the Central Bank of Kenya’s (CBK) latest decision to lower its benchmark interest rate.
After a period of contraction earlier in the year, growth in private sector credit has shown a remarkable and steady improvement, climbing to 5% in September 2025.
This recovery from a -2.9% in January signals a revitalisation of business and consumer confidence, providing the Monetary Policy Committee (MPC) with the evidence it needed to enact a further 25-basis-point cut, bringing the Central Bank Rate (CBR) down to 9.25% from 9.5%.
This upward trajectory in lending is concentrated in the economy’s most vital engines. Key sectors such as manufacturing, building and construction, and consumer durables are experiencing improved access to credit, pointing to renewed investment in industrial capacity, infrastructure, and major household purchases.
The MPC directly linked this positive shift to the declining cost of borrowing, a direct result of its own previous policy easing. As some commercial bank lending rates have fallen to 15.1% from highs of 17.2% in November 2024, the cost of financing expansion and large-ticket items has become more manageable, stimulating demand for loans.
Thus, the Committee’s confidence in cutting the CBR. This was further reinforced by the health of the financial system itself. The banking sector remains stable and resilient, with strong capital and liquidity.
In an encouraging parallel development, the burden of non-performing loans (NPLs) has begun to recede, dipping to 17.1% in September from 17.6% in June. Noted in sectors like real estate and trade, it indicates that the increased lending is occurring alongside a reduction in financial stress, creating a healthier credit environment.
This robust foundation gave the MPC the assurance that a further modest easing of policy was appropriate to cement the ongoing recovery. The CBK aims to pour fuel on this nascent fire of economic activity.
The decision is a deliberate strategy to make borrowing even more attractive, thereby amplifying lending growth to support the economy amidst global uncertainties. With inflation expectations firmly anchored and the exchange rate stable, the MPC identified a clear window to provide additional, targeted support.
The resurgence in private sector credit is thus both a validation of past policy and the primary catalyst for this new intervention.
