The Central Bank of Kenya (CBK) has cut the Central Bank Rate (CBR) by 75 basis points, from 10.75% to 10.00%, marking the fifth consecutive reduction since August 2024.
This decision by the Monetary Policy Committee (MPC) comes amid moderated inflation, improved economic indicators, and a cautious global outlook marked by geopolitical tensions and trade uncertainties.
Kenya’s inflation stood at 3.6% in March 2025, slightly up from 3.5% in February, but still within the government’s target range of 5±2.5%. Core inflation rose to 2.2%, driven by higher processed food prices, while non-core inflation dropped to 7.4%, thanks to stable energy prices, favorable weather, and stable exchange rates. Inflation is expected to remain subdued in the short term.
The country’s economic growth slowed to 4.6% in 2024 from 5.6% in 2023, but early 2025 indicators suggest a rebound with real GDP growth projected at 5.4%. This optimism is driven by the resilient services and agriculture sectors, a recovery in private sector credit, and stronger exports.
Business leaders and agricultural stakeholders are optimistic, supported by stable macroeconomic conditions, falling interest rates, and favorable weather patterns. However, concerns remain over weak consumer demand and high business costs. The country’s current account deficit decreased to 3.1% of GDP by February 2025, down from 3.3% in the previous year, driven by stronger exports, robust remittances, and reduced oil imports.
CBK’s foreign exchange reserves remain strong at Sh1.29 trillion ($9.93 billion), covering over four months of imports. The banking sector continues to show resilience with adequate liquidity and capital buffers, though non-performing loans (NPLs) have risen from 16.4% in December 2024 to 17.2% in February 2025, mainly due to increases in sectors like real estate, trade, manufacturing, and construction.
To enhance monetary policy, the MPC has narrowed the interest rate corridor around the CBR from ±150 basis points to ±75 basis points, aiming to stabilize interbank rates. The Discount Window rate has been set at 75 basis points above the CBR, marking the upper bound of the new corridor.
The rate cut follows a global assessment, with steady recovery in 2024 driven by strong performances in the U.S. and emerging economies like India. However, the outlook for 2025 remains uncertain, with risks including escalating trade tensions, new U.S. tariffs, and ongoing geopolitical conflicts, particularly in the Middle East and the Russia-Ukraine war.
By joining other central banks in lowering rates, CBK hopes to improve access to finance for businesses, thereby stimulating economic growth. The MPC will review the impact of these changes at their next meeting in June 2025 and decide on further actions.
