KEY POINTS
- Kenya’s benchmark rate cut by 75 basis points to 11.25%.
- Inflation remains below target despite slight uptick.
- Banks urged to lower rates for private lending.
Kenya’s central bank lowered its benchmark lending rate by 75 basis points to 11.25 percent on Thursday, surpassing the 50 basis points predicted by analysts.
The move represents the third successive rate cut since August, reflecting an effort to tackle persistent inflation and stimulate growth in Kenya.
The Monetary Policy Committee (MPC) highlighted that November inflation climbed to 2.8 percent against 2.7 percent in October, well below the government’s target range of 2.5% to 7.5%.
“Inflation is expected to remain below the midpoint of the target range in the near term, supported by low fuel prices, stable food costs and a steady exchange rate,” the MPC noted.
Focus on private sector lending
Kenya’s economic growth rate slowed in the first half of the year, prompting the MPC to pursue expansionary monetary measures.
In addition, the government has downwardly adjusted short-terms on government securities, yet banks have not fully aligned their lending rates.
While short-term rates on government securities have adjusted downward, banks have yet to fully align their lending rates.
“The MPC urges banks to lower their lending rates to stimulate credit to the private sector,” the statement read.
Kenya’s banking association has also pushed for deeper rate cuts to provide stronger market signals and reduce borrowing costs.
Economic outlook and fiscal challenges
The central bank maintained its growth projections at 5.1 percent for 2024 and 5.5 percent for 2025.
However, the government faces mounting fiscal pressures after abandoning planned tax hikes worth 346 billion shillings ($2.68 billion) following widespread protests in June.
The rate cut highlights the bank’s balancing act between supporting economic recovery and ensuring financial stability in the face of fiscal constraints.
