Kenya’s MPC cuts key rate to 10.75% to spur growth

On Sunday, the Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) decided to lower the Central Bank Rate (CBR) by 50 basis points to 10.75 percent from the previous 11.25 percent. This move is aimed at supporting economic activity and maintaining exchange rate stability. Additionally, the MPC reduced the Cash Reserve Ratio (CRR) by 100 basis points to 3.25 percent from 4.25 percent to further complement the reduction of the CBR and aid in the lowering of lending rates.

The decision was made within a context of a recovering global growth outlook, projected to improve to 3.3 percent in 2025 from 3.2 percent in 2024, and a moderated global inflation rate. The MPC’s measures also follow the introduction of core and non-core inflation measures by the Kenya National Bureau of Statistics (KNBS) and the CBK in January 2025, which align with East African Community guidelines for harmonized Consumer Price Index computation.

Kenya’s overall inflation stood at 3.3 percent in January 2025, with core inflation declining to 2.0 percent from 2.2 percent in December 2024. The decrease in core inflation was attributed to lower prices of processed food items, while non-core inflation rose due to higher food crop prices. The MPC anticipates overall inflation to remain below the mid-point of their target range, supported by low core inflation and expected easing of energy prices.

The Kenyan economy’s performance slowed down in the third quarter of 2024, growing by 4.0 percent compared to 6.0 percent in the same quarter the previous year. However, the MPC projects an improvement in economic growth for 2025, with a real GDP growth forecast of 5.4 percent, driven by resilient service sectors and agriculture, as well as an expected recovery in private sector credit growth and improved exports.

The surveys conducted before the MPC meeting revealed improved business optimism for the next 12 months, driven by a stable macroeconomic environment, expected decline in interest rates, and favorable weather conditions. However, concerns were raised about subdued consumer demand and the high cost of doing business.

The CBK’s foreign exchange reserves stood at $9,066 million, providing adequate cover against short-term shocks. The banking sector was reported to be stable and resilient, with strong liquidity and capital adequacy ratios. The ratio of gross non-performing loans to gross loans showed a slight decrease.

The MPC will monitor the impact of its policy measures and global and domestic economic developments, and is prepared to take further action if necessary. The next MPC meeting is scheduled for April 2025.

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