Is Kenya Betting on Borrowing as CBK Lowers Rate to 9.75 Percent
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The Central Bank of Kenya (CBK) has reduced the Central Bank Rate (CBR) to 9.75 percent from 10.00 percent, its sixth consecutive cut, raising questions about whether the country is leaning more heavily on credit to support economic activity amid slower growth.
The decision was made during the Monetary Policy Committee (MPC) meeting held on June 10, 2025.
The MPC cited easing inflation and improving credit conditions as key reasons for the adjustment. Headline inflation dropped to 3.8 percent in May from 4.1 percent in April, staying below the mid-point of the 5±2.5 percent target range.
Non-core inflation eased to 6.0 percent, supported by lower food and electricity prices, although core inflation rose slightly to 2.8 percent due to increased costs of processed food items.
Real GDP growth slowed to 4.7 percent in 2024, down from 5.7 percent in 2023, driven by weaker performance across multiple sectors.
Read: Banks Face Daily Fines from June for Failing to Lower Lending Rates, CBK Says
The 2025 growth outlook has been revised to 5.2 percent from an earlier forecast of 5.4 percent, largely due to higher global tariffs and trade frictions. However, early 2025 indicators point to modest recovery.
Private sector credit growth has begun to improve, with commercial bank lending rising by 2.0 percent in May compared to 0.4 percent in April.
The average lending rate dropped to 15.4 percent from 15.7 percent, continuing a trend driven by falling policy rates and a stabilizing exchange rate.
The CBK’s policy appears aimed at encouraging banks to lend more to households and businesses, despite lingering credit risk concerns.
Read: 10 Commercial Banks with the Lowest Lending Rates in Kenya
The banking sector remains stable but challenged by rising non-performing loans (NPLs), which stood at 17.6 percent in April, up from 17.2 percent in February. Increased defaults were noted in trade, personal and household loans, tourism, and construction.
Nonetheless, banks have maintained adequate capital buffers and provisioning levels.
The rate cut comes against a backdrop of slower global growth projections. The International Monetary Fund projects global GDP to grow at 2.8 percent in 2025, down from 3.3 percent in 2024, amid persistent geopolitical risks, trade tensions, and weakening demand from major economies such as the U.S. and China.
CBK’s foreign exchange reserves currently stand at USD 10.83 billion, equivalent to 4.75 months of import cover, offering a buffer against potential external shocks.
The next policy meeting is scheduled for August 2025.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.
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