The Monetary Policy Committee (MPC), the top policy-making of the Central Bank of Kenya (CBK) has cut the benchmark rate yet again, as taps that supply credit to the private sector remain dry. At its meeting held on Wednesday 13th August 2025, the MPC cut the benchmark Central Bank Rate, a monetary tool that signals how banks should price the loans, by 25 basis points from 9.75 to 9.50.
The Committee has been in a rate-cutting mood since August 2024, which has elicited muted responses from a largely oligopolistic banking sector, as private sector credit growth remained stagnant despite the CBK lowering borrowing costs for banks. Figures from CBK show that Average commercial banks’ lending rates only declined slightly to 15.2% in July 2025 from 15.3 percent in June. In November last year, bank lending rates were in the region of 17.2%.
With banks grappling with mountains of non-performing loans, these lenders prefer to stash their cash in safer Government paper rather than risk doing business with financially unstable private sector borrowers.
According to the July 2025 Kenya’s Purchasing Managers Index(PMI), credit uptake in the private sector remains sluggish due to the weak transmission of the CBR cuts, significantly affecting the pace of economic activities. Analysts are doubtful that banks will even blink following this recent benchmark rate review, with many instead suggesting a targeted stimulus package from the Treasury that will spur credit uptake by the private sector.
> Central Bank of Kenya Flags Personal Loans as High-RiskÂ
Kenya’s private sector has been starved of credit for months as shown by the July 2025 PMI Index which fell to 46.8 from 48.6 in June 2025. Readings above 50 point to an improvement in business conditions while below 50.0 points to a deterioration.
Business activity has been on a contraction since May 2025, with the sharpest declines reported in the month of July. This was linked to the social unrest that erupted across the country due to the Gen Z protests, lower consumer spending and a steep rise in the price of essential goods and services.
According to CBK, Kenya’s overall inflation stood at 4.1 percent in July 2025 compared to 3.8 percent in June 2025. Core inflation increased to 3.1 percent in July from 3.0 percent in June, mainly on account of higher prices of processed food items, particularly sugar and maize flour. Non- food inflation rose to 7.2 percent in July from 6.2 percent in June, mainly reflecting an increase in energy prices. A spot check at most retail outlets indicates that a kilogram of sugar has shot up to KSh 180 from KSh 160 a few months ago.
The CBK top think-tank, at its August meeting, concludes that there is scope for further CBR cuts, 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.
It warns of further cuts based on developments in the global and domestic economy. The Committee meets after every two months with the next one scheduled for October 2025.
> KCB App Revolutionises Banking in Kenya
Leave a comment