Commercial banks are asking the Central Bank of Kenya (CBK) to cut the base lending rate further to help lift the pace of private sector credit growth.
Through the Kenya Bankers Association (KBA), the lenders say overall inflation remains low, the foreign exchange rate is stable and private sector credit remains “under strain,” requiring further easing of the Central Bank Rate (CBR).
“In view of low inflation and well anchored inflation expectations, and stability in the exchange rate, the need to stimulate credit growth to support economic activity becomes paramount,” said KBA in a research note published Friday.
“In this regard, we view that there is scope to further ease monetary policy via a cut in the Central Bank Rate; but laced with caution watching the continuing external vulnerabilities.”
The KBA note comes ahead of the CBK Monetary Policy Committee (MPC) meeting on October 7, 2025. The MPC has been cutting the CBR over the past seven meetings, with the recent one coming on August 12 when the rate was lowered to 9.5 percent from 9.75 percent.
KBA hopes a further cut in CBR would make loans more affordable and attract more private sector borrowers. The pace of private sector credit stood at 3.3 percent in August, being the fastest pace in six months.
However, CBK has over the past few months accused banks of being sluggish to respond to cuts in CBR, thereby denying borrowers the benefit of declining benchmark rates.
Banks still have concerns around asset quality, with the non-performing loans ratio rising to 17.6 percent by June 2025.
Higher interest rates discouraged households and firms from tapping new loans, while banks were also shying away from lending due to mounting defaults. The standoff saw private sector credit post negative growths of 2.9 percent and 1.3 percent in January and February, respectively.
KBA says despite improved metrics, including a five percent growth in gross domestic product during the second quarter of the year, the pace of private sector growth has been mild over the seven-month period to August.Â
CBK had battled with volatile shilling and high inflation in 2023 but easing started in 2024, giving it room to cut CBR. The shilling has been exchanging at just under 130 units to the dollar, while inflation has remained within the targeted range of between 2.5 percent and 7.5 percent for months.
Last month, overall inflation rose to 4.6 percent from 4.5 percent posted in the previous month largely due to seasonal food price increases that pushed up non-core inflation.
