In a decisive and calculated shift, the Central Bank of Kenya (CBK) is stepping up its efforts to bring down the cost of borrowing for individuals and businesses.

Through a series of aggressive interest rate cuts and policy shifts, CBK is attempting to push commercial banks into lowering their lending rates and unlocking more affordable credit for the private sector.

At the heart of this strategy is a triple interest rate cut, a rare move that saw the Monetary Policy Committee slash the Central Bank Rate (CBR) by 75 basis points, from 10.75% to 10%.

This is the lowest benchmark rate since 2023 and marks the fifth consecutive cut since August 2024, amounting to a total reduction of three full percentage points.

Yet, despite this continued easing of monetary policy, the response from commercial banks has been slow, with only a handful adjusting their rates in favour of borrowers.

Tightening the Screws on Interbank Lending

In addition to reducing the base rate, CBK has taken further steps to minimise borrowing costs across the financial system.

One of the major moves includes narrowing the interbank interest rate corridor, the band within which banks lend to each other, from 1.5% to just 0.75% above or below the CBR.

This tighter corridor is expected to drive down interbank lending rates, reducing the cost of funds for commercial banks and leaving them little excuse to maintain high lending rates for customers.

READ ALSO:

How NSE’s Bond Market Achieved a Record-breaking Sh1.5 Trillion Turnover

Also in the spotlight is the CBK’s emergency borrowing facility, known as the discount window. Traditionally, banks tapping into this facility were charged a steep 3% above the CBR.

But in the latest review, the CBK has lowered this penalty rate to just 0.75% above the base rate, bringing it in line with the new interbank lending cap.

As a result, both interbank and emergency borrowing will now be limited to 10.75%, creating a ripple effect that should translate to cheaper credit across the board.

Private Sector Credit Still Weak, But CBK Isn’t Backing Down

Despite these ambitious interventions, lending to the private sector remains slow. As of March, credit uptake showed only a modest improvement, while non-performing loans climbed to 17.2%, signalling continued financial pressure on consumers and businesses.

Moreover, only five out of Kenya’s 38 banks had cut their lending rates by February 2025, while 14 banks actually increased them.

The CBK is not turning a blind eye to these challenges. Instead, it’s doubling down on its efforts. The regulator maintains that a credit growth rate of 12% to 15% is crucial for sustaining economic momentum.

READ ALSO:

Why Women-Led Enterprises Stand to Benefit Most From the Renewed NCBA Pact

To that end, the recent measures are designed to apply pressure on commercial banks to follow the CBK’s lead and offer more favourable lending terms to the market.

In a time of global economic uncertainty and trade headwinds, the CBK’s message is clear: it will continue to take proactive steps to lower borrowing costs and stimulate real economic activity.

Whether commercial banks respond in kind or remain cautious will shape the trajectory of Kenya’s recovery and long-term financial health.