The Central Bank has lowered its base lending rate from 12 per cent to 11.25 per cent citing falling global inflation.
The Monetary Policy Committee (MPC) in its December 5 meeting noted that generally, global inflation has declined and central banks in the major economies are expected to gradually continue lowering interest rates.
"Kenya’s overall inflation remained broadly unchanged at 2.8 per cent in November 2024 compared to 2.7 per cent in October, thereby remaining well below the midpoint of the target range of 5±2.5 per cent," the committee chaired by CBK Governor Kamau Thugge said.
"Therefore, the committee
decided to lower the Central Bank Rate (CBR) from 12.00 percent to 11.25 per cent."
The committee attributed Kenya's stable inflation mainly to non-food non-fuel (NFNF) inflation, which eased to 3.2 per cent in November
from 3.3 per cent in October.
The lender, however, said food inflation rose to 4.5 per cent in November from 4.3 per cent in October, attributed to higher prices of a few items, particularly cooking oil.
Fuel inflation remained low at -1.6 per cent in November compared to -1.7 per cent in October, mainly due to lower electricity and pump prices.
MPC said that overall, inflation is expected to remain below the midpoint of the target range of 5±2.5 per cent in the near term, supported by lower food inflation owing to improved supply from the ongoing harvests and favourable weather conditions, lower fuel prices, and a stable exchange rate.
The above factors, the committee said, coupled with slowed economic growth in the first half of the year, necessitated lowering of the base lending rate to support economic activity.
"The MPC will closely monitor the impact of the policy measures as well as developments in the global and domestic economies and stands ready to take further action as necessary in line with its mandate," Thugge said.
The committee called on lenders to structure their interest rates in line with the monetary policy stance, noting that banks had not responded by lowering their rates proportionately despite short-term rates on government securities having declined sharply in line with the CBR.
"The MPC, therefore, urges the banks to take necessary steps to lower their lending rates in order to stimulate credit to the private sector and thereby stimulate more economic activity."
Meanwhile, CBK said the banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios partly due to reduced demand for foreign currency denominated loans attributed to high lending interest rates.
"Growth in local currency
denominated loans stood at 4.0 per cent in October, with the foreign currency denominated
loans, which account for about 26 per cent of total loans, contracting by 11.8 per cent."
The regulator said foreign exchange reserves, which currently stand at USD 8,966 million (4.57
months of import cover) continue to provide adequate cover and a buffer against any
short-term shocks in the foreign exchange market.
The committee will meet again in February 2025.
