The Central Bank of Kenya (CBK) has reduced its benchmark lending rate following the latest Monetary Policy Committee (MPC) meeting, lowering the Central Bank Rate (CBR) by 25 basis points to 8.75% from 9.00%.
The move is aimed at stimulating private sector credit and supporting economic activity amid resilient domestic growth, easing inflationary pressures and a cautiously improving global economy, despite lingering uncertainties.
Globally, the MPC observed that growth remains steady at an estimated 3.3% for 2025, with a similar outlook for 2026. The resilience is largely driven by strong performance in the United States, the euro area and China, supported by robust consumer spending and rising investment in artificial intelligence.
At the same time, global inflation has declined due to lower energy prices and softer demand. However, the committee warned that weak global demand, trade policy uncertainties and geopolitical tensions in regions such as the Middle East and Ukraine continue to pose risks.
Domestically, overall inflation remained within the government’s target band, easing to 4.4% in January 2026 and staying below the 5% midpoint. The moderation was supported by falling food prices, including tomatoes and onions, although core inflation edged up slightly due to higher prices for processed foods such as maize flour.
Kenya’s economy expanded by 4.9% in the third quarter of 2025, with leading indicators pointing to stronger performance in the fourth quarter. Growth for 2025 is estimated at 5%, with projections of 5.5% in 2026 and 5.6% in 2027, supported by a recovering industrial sector and sustained strength in services.
Surveys of chief executive officers and market participants conducted in January 2026 indicate continued optimism, underpinned by low inflation, exchange rate stability and declining interest rates. Private sector credit growth rose to 6.4% in January 2026, rebounding from a contraction a year earlier, while average lending rates fell to 14.8%.
The banking sector has also shown improvement, with the ratio of non-performing loans declining, reflecting better asset quality and borrower health.
In addition, the MPC narrowed the interest rate corridor around the CBR from plus or minus 75 basis points to plus or minus 50 basis points and adjusted the Discount Window rate.
The measures are intended to strengthen monetary policy transmission so that changes in the CBR are more effectively reflected in commercial bank lending rates. This will be supported by the full rollout of the Risk-Based Credit Pricing Model by March 2026.
