CBK Cuts Benchmark Rate to 8.75% to Boost Lending

The Central Bank of Kenya (CBK) on Tuesday lowered its benchmark lending rate by 25 basis points to 8.75 per cent, aiming to stimulate private sector lending and boost economic growth.

The Monetary Policy Committee (MPC) said the decision reflects a combination of resilient economic performance, a stable foreign exchange market and low inflation.

Kenya’s overall inflation eased to 4.4 per cent in January 2026, down from 4.5 per cent in December 2025, and remains below the midpoint of the government’s target range of 2.5% -7.5%.

Stable energy and processed food prices, along with exchange rate stability, are expected to keep inflation contained in the near term.

The MPC highlighted that Kenya’s economy remains resilient, with real GDP growth of 4.9 per cent in the third quarter of 2025, driven by a rebound in the industrial sector and continued strength in services.

Looking ahead, the economy is projected to expand by 5.5 per cent in 2026 and 5.6 per cent in 2027, underpinned by the services sector, industrial recovery, and steady agricultural performance, though risks from adverse weather and global uncertainties remain.

The move marks the 10th consecutive rate cut since August 2024, as the central bank seeks to make borrowing cheaper for businesses and households.

Private sector credit growth has improved to 6.4 per cent year-on-year in January 2026, with strong demand from construction, trade, and consumer sectors.

Average commercial bank lending rates have fallen to 14.8 per cent, down from 17.2 per cent in late 2024, and are expected to ease further following the latest cut.

To enhance the effectiveness of its policy measures, CBK has also adjusted its framework, narrowing the interest rate corridor around the benchmark rate from ±75 basis points to ±50 basis points and adjusting the Discount Window rate to 50 basis points above the CBR.

In addition, the Risk-Based Credit Pricing Model (RBCPM), scheduled to be fully implemented by March 2026, is expected to improve loan pricing transparency and strengthen the transmission of monetary policy decisions to borrowers.

Despite the rate cut, some bankers had previously urged the central bank to hold the benchmark rate steady, noting that previous cuts were still filtering through the economy and the banking system.

They argued that a pause would allow for smoother implementation of the RBCPM and continued assessment of non-performing loans in key sectors.

On the global front, the MPC noted that economic growth remained resilient at 3.3 per cent in 2025, supported by strong performance in the U.S. and Eurozone.

However, risks persist from weak global demand, trade uncertainties, and geopolitical tensions, including ongoing conflicts in the Middle East and the Russia-Ukraine situation.

Kenya’s current account deficit stood at 2.4 per cent of GDP in 2025 and is projected to remain manageable at around 2.2 per cent in 2026 and 2027.

The central bank stressed that it will continue monitoring both domestic and global developments and is ready to take further measures if necessary to ensure price stability, stable exchange rates, and sustainable economic growth.

The next MPC meeting is scheduled for April 2026.

This decisive rate cut signals CBK’s commitment to making credit more accessible, encouraging private sector activity, and sustaining Kenya’s economic momentum amid stable inflation and steady global conditions.

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