CBK Cuts Lending Rate by 50 Basis Points, Boosting Hopes for Cheaper Loans

The Central Bank of Kenya (CBK) has cut the benchmark interest rate by 50 basis points to 10.75 per cent. This marks the fourth consecutive rate cut.

“Lower the Central Bank Rate (CBR) by 50 basis points to 10.75 percent from 11.25
Percent,” Governor Kamau Thugge said in a statement. The rate cut followed a Monetary Policy Committee (MPC) meeting on Wednesday, February 5.

The MPC decided to lower the rate as inflation is expected to remain below the 5 per cent midpoint of the Central Bank’s target range in the near term, “supported by a low and stable core inflation, low energy price inflation, and exchange rate stability,” CBK noted.

The apex bank is expecting banks in return to further lower their lending rates to Kenyans. This has been a contentious issue.

The MPC also reduced the Cash Reserve Ratio (CRR) by 100 basis points to 3.25 per cent from 4.25 per cent, to complement the lowering of the CBR, and support the lowering of lending rates.

CRR is a monetary policy tool used by CBK to regulate liquidity in the banking system. By adjusting the CRR, the CBK influences the amount of funds that commercial banks can lend, thereby impacting overall economic liquidity and stability.

“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 the growth of credit to the private sector,” Governor Kamau asserted.

Last week, the Kenya Bankers Association (KBA) called for a further reduction in interest rates despite initially having reservations. KBA, in a statement, said a further rate cut would encourage more borrowing in the country. 

The banks said a rate cut would support economic growth, which has struggled over the last year. The ball is now in the court of the banks, with many hoping for cheaper loans.

This is an area of contention between the apex bank and the other banks. Over the last year, CBK lowered rates consistently since August; however, banks did not immediately respond with corresponding rate cuts on loans given to Kenyans.

Last month, it emerged that most commercial banks reduced their lending rates in December 2024, passing benefits to borrowers. Data from CBK shows that 23 of the 38 commercial banks reduced their lending rates between November and December.

Some 14 lenders, however, slightly adjusted their lending rates upwards, with one retaining its margins, defying CBK’s calls to lower rates. The average lending rate among commercial banks was 16.89 per cent in December.

“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,” CBK said.