The Central Bank of Kenya (CBK) held its bi-monthly policy meeting on Tuesday and lowered the Central Bank Rate (CBR) further to 9.75 percent from 10 percent, piling pressure on commercial banks to lower borrowing costs for customers and grow private sector credit growth.
The CBK has now lowered the CBR at all its six last policy committee meetings, highlighting the need to stimulate loan growth to businesses and households amid stable consumer prices and reduced volatility on the foreign exchange rate.
The committee concluded that there was scope for further easing of the monetary policy stance, to augment the previous policy actions, aimed at stimulating lending by banks to the private sector and supporting economic activity while ensuring inflationary expectations remain firmly anchored and the exchange rate remains stable.
CBK revised its 2025 growth forecast from 5.4 percent to 5.2 percent citing the impact of US tariffs, even as it expected higher growth for the first quarter from its assessment of leading economic indicators
The CBK Governor then took questions from the media on other developments in the purview of the regulator.
What update are you able to give on Kenya's new lending programme with the International Monetary Fund?
We are expecting an IMF team to come in December to start discussions on Article IV consultations. That time we will also engage them regarding a new arrangement.
With the CBR now at 9.75 percent, some banks are still charging more than double the rate, how are you addressing this?
This has been one of our concerns, we as the Central Bank have eased monetary policy quite significantly in the last few months. Starting with August, we have now lowered the CBR by 325 basis points. We have also seen a significant reduction in the short-term rates, some by more than 50 percent compared to six months ago- there has been a significant reduction in T-bill and Treasury bonds rates.
We have started to see some reductions by commercial banks. On the review of the risk based pricing model, we did have public participation and got a lot of comments from banks and individuals we are putting together all the comments to see what makes sense and we hope to have a revised version by next week and we will be coming back to the public on our proposal so that we can have a new risk-based pricing model that transits the monetary policy decisions much more effectively and sooner.
CBK has revised 2025 growth by 0.2 percent citing US tariffs. Are you seeing a larger impact from the policy uncertainties?
Considering what has happened and the potential slowdown in growth in the US, EU and UK, we thought it would have a negative impact on our economy partly because from those sources; we get most of our remittances from the US, meaning any slowdown in their economy could likely have a negative impact on the remittances.
Our horticultural exports could be impacted by a slowdown in the EU while a slowdown in UK growth also could have an effect through remittances and tourism.
If tariffs are not sustained, we could go back to a growth of 5.4 percent, reflecting a recovery in the construction sector while the lowering of interest rates by banks will positively impact the services sector.
What needs to be done to grow Kenya's aggregate demand which has remained muted?
From the government side, there would be an increase in demand from spending. On the private sector consumption and investment, I think the policies that we are following by trying to push down the lending rates by commercial banks, I believe would stimulate the private sector aggregate demand.
Gross non-performing loans continue to rise, is this largely limited to pending bills or are there larger drivers to this trend?
While NPLs are higher, we have seen a slowdown in growth since the start of the year. There has been adequate provisioning for these NPLs, so the net NPL ratio is about eight percent as you know banks continue to make profits.
Going forward, lower interest rates should have a positive impact on NPLs along with the recent paying off of some of the pending bills in the road sector and the planned addressing of Sh229 billion arrears identified by the pending bills verification committee.
With the recovery of growth from last year, expect NPLs to be positively impacted.
What is the forecast direction of the shilling?
The CBK pursues a flexible exchange rate policy, allowing the rate to move freely in the foreign exchange market based on supply and demand, and intervening only to minimise volatility. The Kenya Shilling is expected to remain stable, consistent with the expected stability in the current account balance, and build up in CBK foreign exchange reserves.
The shilling has remained unchanged at Sh129 level for months. Has it been kept artificially at that level?
The Kenya shilling appreciated by about 17 percent against the US dollar in 2024 and has remained stable in 2025. The stability of the Kenya shilling is supported by economic fundamentals, particularly a narrowing in the current account deficit. This stability also reflects improved investor sentiment and confidence in the economy.
The current account deficit is narrowed to 1.3 percent of GDP in 2024 from 2.5 percent of GDP in 2023, with exports of goods improving by 13.1 percent, services receipts rising by 13.0 percent driven by higher tourism earnings, and an increase in diaspora remittances by 18.0 percent.
Capital and financial account inflows have more than financed the current account deficit, resulting in an overall balance of payments surplus and a build-up in foreign exchange reserves.
Are you worried about Kenya's debt carrying capacity, and what is the way forward?
Kenya's public debt remains sustainable. The recently revised balance of payments data shows higher exports and travel receipts, which has strengthened Kenya's debt sustainability position.
There is also a strong case for future debt sustainability analyses to include diaspora remittances in the computation of the debt ratios, given their significance in foreign exchange inflows.
The continued expansion in exports, build-up in foreign exchange reserves, resilience in remittances inflows as well as the policy measures currently being pursued by the national government aim to continue providing a foundation for macroeconomic stability and long-term growth. This will enhance Kenya's debt-carrying capacity.
