CBK Governor Kamau Thugge. /CBK/FILEThe Central Bank of Kenya has lowered its base lending rate by 50 basis points to 10.75 per cent down from 11.25 per cent, effectively cheapening interest charged on loans.
The Monetary Policy Committee (MPC) chaired by CBK Governor Kamau Thugge, said that in order to further support the lowering of lending rates, the committee resolved to also lower the Cash Reserve Ratio (CRR) by 100 basis points to 3.25 per cent from 4.25 percent.
“With these measures, banks are expected to take the necessary steps to lower their lending rates further, to stimulate growth in credit to the private sector, and support economic activity,” the CBK Governor said.
CBK’s foreign exchange reserves currently stand at $9,066 million, equivalent to 4.6 months of import cover, enough to provide a buffer against any short-term shocks in the foreign exchange market.
In a statement, Thugge said the lowering of the lending rate aligns with the trend in major economies, which have continued to lower their lending rates.
He adds that the MPC lowered the lending rate and CRR to support economic activity whilst ensuring exchange rate stability in cognisance of the fact that the Kenyan economy decelerated in 2024.
“The MPC noted that the reduction in the CRR will release additional liquidity to banks. This is expected to lower the cost of funds and lending rates, and support growth of credit to the private sector,” Thugge said.
The committee, however, noted with concern that despite the CBR having been lowered substantially since the MPC meeting of August 2024, lenders have only marginally lowered their interest rates.
To ensure compliance with the Risk-Based Credit Pricing Model (RBCPM), Thugge said the CBK has embarked on on-site inspection of banks to ascertain that they are reducing their interest rates in line with the RBCPM.
“Under the amendments to the Banking Act recently enacted by Parliament, any bank that has not passed on the benefits of reduced cost of funds to reduce lending rates, will be penalised in accordance with the law,” Thugge warned.
He said MPC will closely monitor the impact of its policy measures as well as developments in the global and domestic economy and will take further necessary action in line with its mandate when it meets next in April.
Meanwhile, the MPC said Kenya's overall inflation rose marginally to 3.3 per cent in January 2025 compared to 3.0 per cent in December 2024, but it’s expected to remain below the midpoint of 5±2.5 percentage target range in the near term.
It said global headline inflation has moderated but the pace of decline has slowed down in major economies due to sticky core inflation.
Overall, the committee said global economic growth continues to recover and is projected to improve to 3.3 per cent in 2025 from an estimate of 3.2 in 2024.
