Central Bank of Kenya cuts rate to 10.00% amid global uncertainties

Investing.com -- In an attempt to stimulate economic activity and maintain exchange rate stability, the Central Bank of Kenya's Monetary Policy Committee (MPC) has reduced the Central Bank Rate (CBR) to 10.00 percent. The decision was made during the committee's meeting held on April 8, 2025.

The committee's decision comes amid heightened global uncertainties, including potential slowdown due to escalating trade tensions and geopolitical conflicts. Despite these challenges, the global economy experienced steady recovery in 2024, largely driven by strong growth in the United States and large emerging market economies such as India.

The MPC noted that global headline inflation was moderate, but the outlook remained uncertain due to potential inflationary impacts of higher tariffs on imports. Major economies have continued to lower their interest rates, with the pace varying based on inflation and growth expectations.

Domestically, Kenya's overall inflation was 3.6 percent in March 2025, a slight increase from 3.5 percent in February. However, it remained below the mid-point of the target range of 5±2.5 percent. The slight increase in core inflation was mainly due to higher prices of processed food items.

Kenya's economy slowed down in 2024, with real GDP estimated at 4.6 percent compared to 5.6 percent in 2023. However, indicators suggest an improved performance in the first quarter of 2025, with real GDP growth projected at 5.4 percent for the year. This growth is expected to be supported by resilience in key service sectors and agriculture, recovery in credit growth to the private sector, and improved exports.

The revised balance of payments data revealed that the current account deficit narrowed to 3.1 percent of GDP in the 12 months to February 2025, compared to 3.3 percent in a similar period in 2024. This improvement was due to increased exports of goods and services, resilient diaspora remittance inflows, and lower oil imports.

The Central Bank of Kenya's foreign exchange reserves stood at USD 9,930 million, providing adequate cover against any short-term shocks in the foreign exchange market. Meanwhile, the banking sector remained stable and resilient, with strong liquidity and capital adequacy ratios.

Commercial bank lending to the private sector recorded a modest growth of 0.2 percent in March 2025. This growth, albeit small, is an improvement from a contraction of 1.3 percent in February.

In line with the policy rate cut, the MPC also approved the narrowing of the width of the interest rate corridor around the CBR from ±150 basis points to ±75 basis points. This adjustment is expected to enhance the stability of the interbank rate and align it closer to the Central Bank Rate.

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