Kenyans are set to benefit from reduced borrowing costs following the Central Bank of Kenya’s (CBK) decision to lower the base lending rate from 12.00% to 11.25%. The Monetary Policy Committee (MPC) announced this adjustment on December 5, citing several factors that influenced the move.
In its statement, the MPC highlighted that overall inflation is expected to remain below the target midpoint in the near term, driven by stable food and fuel prices as well as a steady exchange rate.
The committee also noted that global monetary policies have trended toward rate cuts, with central banks in major economies gradually reducing their rates.
The CBK’s decision is also informed by domestic economic conditions, including a slowdown in economic growth during the first half of 2024, where GDP growth decelerated from 5.5% to 4.8%.
This easing of the monetary policy aims to stimulate economic activity and support recovery, with projections of GDP growth reaching 5.1% by the end of 2024 and 5.5% in 2025.
While short-term rates on government securities have already declined in line with the base rate, commercial banks have been slower to adjust their lending rates.
The CBK urged banks to lower their rates to stimulate private sector credit, which is critical for driving economic activity.
Inflation remains low at 2.8%, below the target midpoint, reflecting a stable price environment. Additionally, the agriculture sector shows signs of optimism, contributing to economic stability, while the global economy is recovering with reduced inflation in advanced economies. However, the MPC warned of potential risks from ongoing geopolitical tensions.
The committee pledged to monitor the effects of these policy measures and global and domestic economic developments closely, reaffirming its readiness to take further action if necessary. The MPC is scheduled to meet again in February 2025 to review the economic outlook.
