The Central Bank of Kenya (CBK) has followed its previous seven rate cuts with a further 0.25 percentage points reduction in the benchmark as it seeks to further aid the recovery of lending to businesses and households.
CBK’s benchmark lending rate, the Central Bank Rate (CBR), has eased further to 9.25 percent from 9.5 percent, making it the eighth consecutive interest rate cut by the monetary authority since August 2024.
The lowering of the policy rate comes amid CBK’s push for lower lending rates by commercial banks, even as private sector lending recovers to rise by five percent over the 12 months to the end of September 2025.
Average commercial banks’ lending rates declined to 15.1 percent in September from 15.2 percent in August, but remain relatively higher in contrast to prior CBK rate cuts.
“The committee (Monetary Policy Committee) concluded there was scope for a further easing of the monetary policy stance by reducing the CBR by 25 basis points,” CBK said on Tuesday.
“This will augment the previous policy actions aimed at stimulating lending to banks to the private sector and supporting economic activity, while ensuring inflationary expectations remain firmly anchored, and the exchange rate remains stable.”
Private sector credit improved to stand at five percent in September from 3.3 percent in August and from a decline of 2.9 percent in January 2025.
The recovery in lending has been primarily witnessed in the sectors of manufacturing, building and construction and consumer durables.
“This mainly reflects improved demand for credit in line with the declining lending interest rates,” CBK added.
The apex bank expects the revised banking sector risk-based pricing model, which becomes fully operational by March 2026, to improve the transmission of its monetary policy committee decisions to commercial banks’ lending rates.
Despite the persistence of relatively higher borrowing costs for customers, banks’ asset quality improved as gross non-performing loans fell to 17.1 percent in September from 17.6 percent in June. Major decreases in loan delinquencies were noted in building and construction, real estate, tourism, restaurants, hotels and trade.
CBK’s survey of chief executive officers and the market conducted last month revealed sustained optimism on business activity and economic growth prospects for the next 12 months.
The optimism was attributed to improved agricultural production supported by favourable weather conditions, stable macroeconomic conditions, declining interest rates and resilience in tourism and the digital economy.
Some respondents to the surveys however warned of subdued consumer demand, high cost of doing business and sustained global uncertainties.
Tuesday’s rate cut brings the CBR to its lowest level since March 2023.
