The Central Bank of Kenya (CBK) has reduced its benchmark interest rate by 75 basis points (bps) to 12% during its Monetary Policy Committee (MPC) meeting on October 8, 2024. This marks the second consecutive rate cut, a first since the Covid-19 crisis.
The CBK’s decision was influenced by a significant easing of inflation and the stabilisation of the Kenyan shilling. Inflation dropped to 3.6% in September 2024, its lowest level since December 2012, down from 4.4% in August. Analysts noted that this recent cut follows a 25 bps reduction in August, the first adjustment of this kind in four years.
The Finance Minister, John Mbadi, had signalled earlier in the month that the central bank should consider lowering its lending rates, given the declining inflationary pressures. Last week, Mbadi highlighted the importance of easing credit conditions to stimulate the economy and foster growth in key sectors.
The Kenya Bankers’ Association (KBA) supported this sentiment, stating in an October 3 research note that the CBK had room to “effect a decisive policy rate cut” to boost economic growth. The association stressed that a reduced policy rate would enhance the recovery of private sector credit, which has been under pressure in recent quarters.
In its statement, the MPC acknowledged the deceleration of private sector credit and slower economic growth in the second quarter of 2024. “The MPC noted the sharp deceleration in credit to the private sector, and the slowdown in growth in the second quarter of 2024, and concluded that there was scope for a further easing of the monetary policy,” the bank said.
With inflation now within the CBK’s target range of 2.5% to 7.5%, this rate cut signals a concerted effort by the bank to balance economic stabilisation with growth incentives. Economists predict that this move will help stimulate borrowing and investment in the private sector, essential for driving Kenya’s economic recovery.
The reduction in the benchmark interest rate is expected to have far-reaching impacts on various sectors of the economy, enhancing business confidence and improving credit access for companies and individuals alike. As the private sector responds to these more favourable lending conditions, Kenya’s growth prospects for the remainder of 2024 and beyond may brighten, provided inflation remains under control.
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