Kenya’s central bank has cut its benchmark lending rate by 25 basis points to 9 percent, its second consecutive reduction as policymakers signal growing confidence in the country’s economic outlook.
The Monetary Policy Committee (MPC) said the decision was supported by easing inflation, improving private-sector credit conditions and a steady exchange rate.
“The Committee concluded that there was scope for a further easing of the monetary policy stance by reducing the CBR by 25 basis points,” the MPC said. It added that the move would complement earlier actions aimed at stimulating lending to businesses and supporting economic activity.
Headline inflation slowed to 4.5 percent in November, remaining below the 5 percent midpoint of the Central Bank of Kenya’s target range of 2.5 percent on either side. Core inflation also eased on lower processed food prices, although non-core inflation rose slightly following higher vegetable costs.
Economic growth averaged 4.9 percent in the first half of 2025, with the central bank projecting expansion to strengthen to 5.2 percent in 2025 and 5.5 percent in 2026. Policymakers say improved rainfall, lower input costs and better foreign-exchange stability are helping ease pressures on households and businesses.
Business confidence has strengthened in recent months. Executives polled by the central bank cited stable inflation, a firm shilling, favourable weather and declining interest rates as key drivers of renewed optimism. Private-sector credit growth rose to 6.3 percent in November, up from 5.9 percent in October and reversing a contraction recorded earlier in the year. Lending rates have also eased to an average of 14.9 percent compared with 17.2 percent a year earlier.
The CBK said it will continue monitoring the impact of the rate cut and stands ready to adjust policy further. The next MPC meeting is scheduled for February 2026.
More on Kenya’s monetary conditions
Kenya has spent much of the past two years grappling with tight monetary conditions and weaker global demand. The central bank aggressively raised rates between 2022 and early 2024 in a bid to tame inflation driven by high food prices, currency depreciation and elevated global energy costs. The benchmark rate peaked at 13 percent in early 2024, its highest level in more than a decade.
Those measures helped stabilise the shilling after a sharp slide in 2023, when external financing pressures and a widening trade deficit pushed the currency to record lows. The exchange rate has since strengthened, supported by improved foreign inflows, lower import bills and renewed confidence in Kenya’s external debt outlook.
The government has also made progress on fiscal consolidation as part of its IMF-backed programme, narrowing the budget deficit through spending restraint and revenue reforms. While these measures have helped restore macroeconomic stability, they have also tightened liquidity in the domestic economy, prompting calls from industry groups for accommodative monetary policy to support credit-dependent sectors.
Kenya’s rate-cutting cycle began in mid-2025 after inflation started easing and food supplies recovered following better rains. The CBK has emphasised that its easing path will remain gradual to avoid reigniting inflation or putting pressure on the exchange rate.
Economists say the pace of future cuts will depend on global commodity price trends, domestic food supply, and the government’s fiscal stance. Many warn that while conditions are improving, risks remain including volatile global markets, high public debt and ongoing pressure on households facing elevated living costs.
Still, analysts note that Kenya now appears to be entering a phase of relative stability after two turbulent years. Lower interest rates, stronger agricultural output and improved investor sentiment could help unlock credit, revive consumer spending and support the manufacturing, trade and services sectors that drive most of the country’s GDP.
