CBK lowers base lending rate for sixth time to spur private sector credit

The MPC noted that overall inflation declined to 3.8 per cent in May, remaining within the targeted range. 

The June MPC meeting resolved to lower the base lending rate from 10 per cent set in April, to 9.75 per cent for the next two months. A 25 basis point reduction. 

That reflects a continuous monetary easing for the 6th consecutive time. A move that the Central Bank Governor Kamau Thugge says is geared toward the need to support the recovery of private sector credit growth and bolster overall economic activity.

"We have seen a steady decline to 15.4 pc in May …we expected that with this further reduction, banks will continue to lower the lending rate,"Kamau Thugge, CBK Governor, stated. 

To ensure a more immediate response in the market, the Central Bank says that by next week, it will publish a revised version on risk-based pricing, after receiving feedback from financial institutions. 

This the CBK argues has been occasioned by the lag in the translation of new rates, accusing banks of only moving with speed when the rates go up, but being reluctant when the rates come down.

"We would like to see that reflected as possible in the lending rate, and when we increase it we'd like it to be transmitted as quickly…there seems to be more of a lag in the reduction that we see in the increase," Thugge noted. 

Although early indicators in early 2025 suggest a rebound, supported by resilient services and agriculture sectors, the CBK has reviewed downwards its GDP projection for 2025 to 5.2 per cent from 5.4 per cent, mainly due to external trade challenges which the governor argues could have an adverse impact on the Kenyan economy.

"We have revised our projection and taking into account what's happening in this and the slow growth in US E.U and U.K we thought it have a negative impact on our economy from those sources we get most of our remittances from the US at 55 pc," he added.