The Central Bank of Kenya (CBK) has lowered its benchmark lending rate by 25 basis points to 9.0 per cent, marking the ninth consecutive cut in 2025.
This represents a cumulative 175 basis points unwind of the Central Bank Rate (CBR) this year, underscoring the Monetary Policy Committee’s (MPC) commitment to stimulating private sector credit and supporting economic activity.
“The Committee concluded that there was scope for a further easing of the monetary policy stance by reducing the CBR by 25 basis points. This will augment previous policy actions aimed at stimulating lending by banks to the private sector and supporting economic activity, while ensuring inflationary expectations remain firmly anchored,” the MPC noted in its statement.
Green Shoots in the Banking Sector
The CBK highlighted encouraging signs of resilience in the financial system:
- Asset Quality: The ratio of gross non-performing loans (NPLs) fell to 16.5 per cent in November, down from 17.6 per cent in August.
- Credit Infusion: Private sector credit growth accelerated to 6.3 per cent, reflecting improved demand and declining lending rates.
Average commercial bank lending rates eased to 14.9 per cent in November, compared to 17.2 per cent a year earlier, signalling improved transmission of monetary policy.
Emerging Risks
Despite the positive momentum, the MPC flagged several downside risks:
- Inflationary Pressures: Non-core inflation breached double digits, closing at 10.1 per cent in November, driven by higher vegetable prices. Headline inflation is expected to rise in Q1 2026.
- External Balances: The current account deficit widened to 2.2 per cent of GDP in the 12 months to October, up from 1.5 per cent a year earlier, reflecting higher imports of intermediate and capital goods.
Economic Outlook
Kenya’s economy grew at an average of 4.9 per cent in the first half of 2025, with projections of 5.2 per cent in 2025 and 5.5 per cent in 2026. Growth is expected to be supported by resilient agriculture, recovery in industry, and strong service sector performance. However, risks remain from global trade tensions, adverse weather, and geopolitical uncertainties.
Global growth is projected at 3.2 per cent in 2025, moderating slightly to 3.1 percent in 2026, with easing inflationary pressures driven by lower energy prices.
Bottom Line
The CBK’s ninth rate cut in 2025 reflects confidence in Kenya’s macroeconomic stability and a push to unlock credit flows. While asset quality and private sector lending show “remarkable green shoots,” inflationary risks and external imbalances remain watchpoints heading into 2026.
