The Central Bank of Kenya (CBK) has piled more pressure on commercial banks to lower lending rates by cutting the benchmark rate at its sixth straight meeting to 9.75 percent from 10 percent.
The regulator observed that there was more scope to ease its policy rate to revitalise private sector lending amid persistent low inflation and exchange rate stability.
Average commercial bank lending rates have remained high, at 15.4 percent in May 2025 from 15.7 percent in April, even as returns on competing asset classes such as the one-year Treasury bill falls below 10 percent.
The CBK has now cut its key lending rate by a cumulative 3.25 percentage points since August last year when it commenced easing its policy stance.
The Central Bank Rate (CBR) now sits at its lowest since June 2023.
“The committee (Monetary Policy 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 are firmly anchored and the exchange rate remains stable,” CBK said in a statement on Tuesday.
“Therefore, the committee decided to lower the Central Bank Rate by 25 basis points to 9.75 percent from 10 percent.”
Commercial banks have been slow to review their lending rates to customers despite deeper rate cuts by CBK in recent months, dampening private sector credit growth while escalating loan delinquencies.
Credit growth to the private sector has remained subdued, growing by only two percent in 12 months to May 2025, albeit an improvement from 0.4 percent in April.
The banking industry's non-performing loans (NPLs) have meanwhile remained elevated, rising to 17.6 percent in April this year from a lower 17.2 percent in February.
CBK previously warned it would start issuing sanctions, including daily fines, to commercial banks for failing to cut interest rates to customer loans despite successive benchmark rate reductions.
The regulator began physical inspections in February to ascertain lenders who had complied with the directive to lower charges on loans in line with their approved risk-based credit pricing models.
Banks have on the other hand pushed for a review of the risk-based loan pricing framework but have differed with the CBK on a proposal to have the apex bank approve lending margins above the proposed base rate of the central bank rate.
CBK says the stable macroeconomic environment has galvanised optimism about business activities and economic growth in the next 12 months. Kenya’s overall inflation declined to 3.8 percent in May from 4.1 percent in April, remaining below the mid-point target of five percent on lower prices of food crops and related items including vegetables.
“Overall inflation is expected to remain below the mid-point of the target range in the near term, supported by stability in food and energy prices, and continued exchange rate stability,” CBK added.
CBK says leading economic indicators in the first quarter of 2025 have pointed to the improved performance of output but has cut its economic growth outlook for the year from 5.4 percent to 5.2 percent due to the impact of higher tariffs on exports to the United States.
The performance of the Kenyan economy slowed down last year with real GDP growing at a slower 4.7 percent from 5.7 percent previously reflecting deceleration in growth for most sectors of the economy.
