Kenya Cuts Benchmark Interest Rate to 12% to Boost Private Sector Credit

The Central Bank of Kenya (CBK) has reduced its benchmark interest rate by 75 basis points to 12% in its October 8, 2024, meeting, aiming to stimulate private sector credit growth.

This marks the second consecutive rate cut, a trend not seen since the Covid-19 crisis, triggered by a drop in inflation to the lower end of the CBK’s target range of 2.5% to 7.5% and a more stable Kenyan shilling. Annual inflation in Kenya eased to 3.6% in September 2024, its lowest level since December 2012, down from 4.4% in August. In August, the CBK made a prior reduction of 25 basis points, its first in nearly four years, with Finance Minister John Mbadi advocating for further rate reductions due to sustained low inflation.

The Kenya Bankers’ Association, in an October 3 report, underscored the need for a “decisive policy rate cut” to enhance economic growth through increased private sector lending. The CBK’s Monetary Policy Committee (MPC) noted the sharp deceleration in private sector credit growth and slower economic expansion in the second quarter of 2024, concluding that there was room for further easing of monetary policy to foster economic recovery.