The Central Bank of Kenya (CBK) has lowered its benchmark lending rate in a move aimed at boosting private sector lending and supporting economic growth.
In a statement released on Tuesday, October 7, 2025, CBK Governor and Monetary Policy Committee (MPC) Chairperson Dr Kamau Thugge announced that the Central Bank Rate (CBR) had been reduced by 25 basis points to 9.25 per cent from 9.50 per cent.
Dr Thugge said the decision followed a careful review of global and domestic economic trends.
“The Committee concluded that there was scope for a further easing of the monetary policy stance by reducing the CBR. This will augment the previous policy actions aimed at stimulating lending by banks to the private sector and supporting economic activity, while ensuring inflationary expectations remain firmly anchored and the exchange rate remains stable,” he said.
Stable Economy
The MPC noted that Kenya’s inflation remained well within target. Overall inflation stood at 4.6 per cent in September compared to 4.5 per cent in August, staying below the mid-point of the target range of 5 per cent.
Core inflation, which excludes food and energy prices, dropped to 2.9 per cent in September from 3.0 per cent in August due to lower prices of processed foods like maize flour. However, non-core inflation edged up to 9.6 per cent from 9.2 per cent in August, driven mainly by higher prices of vegetables such as tomatoes, onions, carrots and cabbage.
“Overall inflation is expected to remain below the midpoint of the target range in the near term, supported by stable energy prices and continued exchange rate stability,” the MPC said.
Economy shows resilience
The CBK said Kenya’s economy remained resilient despite global challenges. Recent data showed the economy grew by 5.0 per cent in the second quarter of 2025, up from 4.6 per cent in the same period last year.
The growth was driven by strong performance in the industrial sector, steady agriculture, and resilient service sectors such as transport, finance, insurance and retail trade.
Economic growth is projected to improve to 5.2 per cent in 2025 and 5.5 per cent in 2026, supported by continued recovery in agriculture and industry.
“Leading indicators of economic activity point to improved performance in the third quarter of 2025,” the MPC stated.
Optimism
Business leaders expressed confidence in the economy’s direction. The CBK’s September 2025 CEOs and Market Perceptions Surveys revealed optimism about business activity and economic prospects for the next 12 months.
The optimism was attributed to improved agricultural output due to favourable weather, low inflation, stable exchange rates, declining interest rates, and strong performance in tourism and the digital economy.
However, some respondents raised concerns about subdued consumer demand, high cost of doing business and uncertainty caused by global geopolitical tensions.
Private sector lending rising
The CBK reported that commercial banks’ lending to the private sector had grown steadily, reaching 5.0 per cent in September compared to 3.3 per cent in August and reversing a decline of -2.9 per cent in January 2025.
Credit growth was particularly strong in manufacturing, construction and consumer durables, reflecting improved demand in line with lower lending rates.
Average commercial bank lending rates fell to 15.1 per cent in September from 15.2 per cent in August and 17.2 per cent in November 2024.
The MPC also highlighted that the revised Risk-Based Credit Pricing model, set to be fully operational by March 2026, would improve the transmission of monetary policy decisions to lending rates and enhance transparency in loan pricing.
The CBK’s foreign exchange reserves currently stand at $10.76 billion, equivalent to 4.72 months of import cover, providing a strong buffer against external shocks.
The banking sector remains stable with strong liquidity and capital adequacy. Non-performing loans (NPLs) declined to 17.1 per cent in September from 17.6 per cent in June, with notable improvements in construction, real estate, tourism and trade sectors.
Fiscal consolidation
The MPC noted that the implementation of the FY2025/26 Budget supports the government’s fiscal consolidation strategy, which is expected to reduce debt vulnerabilities.
Dr Thugge said the CBK would continue to monitor the impact of the rate cut and other economic developments.
“The MPC will closely monitor the impact of this policy decision as well as developments in the global and domestic economy and stands ready to take further action as necessary,” he said.
The next MPC meeting will be held in December 2025.
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