Kenyan Central Bank Pushes Banks to Cut Lending Rates
TLDR
- Kenya’s central bank is inspecting commercial banks to understand why lending rates remain high despite a series of rate cuts
- The Central Bank of Kenya (CBK) has slashed its benchmark rate by 2.25 percentage points since August, bringing it to 10.75%
- On Wednesday, CBK cut its policy rate by another 50 basis points to 10.75%, marking its fourth consecutive cut
Kenya’s central bank is inspecting commercial banks to understand why lending rates remain high despite a series of rate cuts. The Central Bank of Kenya (CBK) has slashed its benchmark rate by 2.25 percentage points since August, bringing it to 10.75%. However, average bank lending rates remained at 16.9% in December, Governor Kamau Thugge said.
On Wednesday, CBK cut its policy rate by another 50 basis points to 10.75%, marking its fourth consecutive cut. It also lowered the Cash Reserve Ratio by 100 basis points to 3.25% to encourage lending.
The bank aims to boost economic growth, which slowed to 4.6% in 2024. It expects GDP to expand 5.4% in 2025, supported by key service sectors, agriculture, and credit recovery. Inflation is projected to stay within the target range of 2.5%-7.5%.
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Key Takeaways
Kenya’s central bank is pressuring lenders to pass on rate cuts to borrowers. On-site inspections of banks are part of efforts to ensure lower funding costs translate into cheaper loans. The central bank expects a modest improvement in economic growth, supported by agriculture and exports. However, slow transmission of rate cuts to lending rates could hinder credit expansion. The country’s current account deficit is forecast at 3.8% of GDP in 2025, slightly higher than 2024’s estimated 3.7%. A balance of payments surplus of $1.466 billion in 2024, supported by IMF inflows, helped boost Kenya’s foreign reserves by $2.749 billion. CBK’s challenge remains to ensure commercial banks align their lending rates with its easing policy, a critical factor for sustaining economic momentum.
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