In a decisive move to invigorate Kenya’s economy, the Central Bank of Kenya (CBK) announced a 50 basis point reduction in the Central Bank Rate (CBR) to 10.75% during its Monetary Policy Committee (MPC) meeting on February 5, 2025.

In addition, the Cash Reserve Ratio (CRR) was lowered by 100 basis points to 3.25%. These measures aim to make borrowing more affordable, encourage private sector activity, and stimulate broader economic growth.

Addressing Economic Slowdown and Projected Recovery

Kenya’s economy experienced a slowdown in 2024, with GDP growth falling to 4.6% from the previous year’s 5.6%, largely due to weakened performance in key sectors.

However, projections for 2025 are more optimistic, with an anticipated growth of 5.4%, driven by resilient service industries, recovery in agriculture, and increased private sector lending.

By lowering the CBR, the CBK hopes to make credit more accessible, thereby encouraging businesses and consumers to borrow and invest.

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Enhancing Liquidity to Support Lending

The MPC’s reduction of the CRR is designed to inject additional liquidity into the banking system, which will reduce the cost of funds for banks.

In turn, this is expected to lead to lower lending rates, giving the private sector the financial flexibility to expand. The CBK acknowledged that despite previous rate cuts since August 2024, lending rates had only dropped marginally.

The latest adjustment aims to further incentivize banks to pass on these lower costs to borrowers, spurring economic activity.

To ensure banks comply, the CBK has started conducting on-site inspections to verify that financial institutions are adopting the Risk-Based Credit Pricing Model (RBCPM).

Recent amendments to the Banking Act have made it clear that banks that fail to align their lending rates with the reduced cost of funds will face penalties.

Managing Inflation and Ensuring Market Stability

Kenya’s inflation rate stood at 3.3% in January 2025, within the target range of 5±2.5%. Core inflation, which excludes volatile items like food and energy, dropped to 2.0% from 2.2% in December 2024, reflecting low demand-driven pressures.

With these measures, the CBK aims to maintain stable inflation while fostering a favorable environment for lending and investment.

Encouraging Private Sector Lending

In December 2024, private sector lending contracted by 1.4%, largely due to high lending rates and the impact of exchange rate fluctuations.

With the new policy adjustments, the CBK seeks to reverse this negative trend and create a more favorable lending environment. By reducing the cost of borrowing, the central bank hopes to empower businesses to make investments, expand operations, and contribute to economic recovery.

Continuous Monitoring and Strategic Interventions

The CBK has emphasized its commitment to monitoring the effects of these policy changes closely and responding to both local and global economic shifts.

The next MPC meeting is scheduled for April 2025, and the central bank is ready to take further action if necessary.

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Central Bank of Kenya: Services, Careers, and Key Information

The Central Bank of Kenya plays a pivotal role in managing the country’s monetary policy, ensuring economic stability, and overseeing inflation rates.

Those interested in career opportunities can explore job openings on the CBK website. The central bank also provides key financial information, including exchange rates and updates, through its online portal.

For customers seeking services, CBK branches are available across the country, with working hours listed on the official website.

Looking Ahead

The recent interest rate cut and CRR reduction mark a bold effort to stimulate Kenya’s economy and restore private sector vitality. As banks adapt to these changes, businesses and consumers alike are expected to benefit from more accessible credit.

With careful monitoring and strategic interventions, Kenya is poised for a strong economic recovery in 2025.