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The Central Bank of Kenya (CBK) has announced a reduction in the benchmark interest rate to 12.75%, following a deceleration in inflation rates. This adjustment marks the end of a tightening cycle, with the rate cut being the first since April 2020.
The interest rate had remained at 7% from April 2020 until April 2022, after which it was progressively increased, reaching a peak of 13% in April 2024. The recent 25 basis point reduction indicates a shift in monetary policy as inflation pressures ease.
According to the CBK, the decision reflects expectations that inflation will stay below the midpoint of the target range in the near term, supported by a stable exchange rate, lower food prices due to anticipated harvests, and stable fuel costs. “Inflation is expected to remain below the midpoint of the target range, aided by these factors,” the bank stated following its Monetary Policy Committee (MPC) meeting on Tuesday.
Inflation in Kenya slowed to 4.3% in July from 4.6% in June, remaining under the government’s 5% target. Food inflation held steady at 5.6% across both months. Earlier in the year, the CBK had raised rates to tackle high inflation and bolster the Kenyan shilling.
The Kenyan shilling has shown stability over the past six months, and Kenya’s economy saw a 5% growth in the first quarter of 2024, according to the CBK’s earlier report. The growth was driven by strong performance in agriculture and services, although manufacturing and construction sectors experienced a slowdown.
Exports also saw a significant increase, rising by 11.8% in the first half of 2024 compared to the same period in 2023.
The Kenyan economy is projected to grow by 5.4% in 2024, supported by services, agriculture, and export activities. However, global uncertainties, including trade and geopolitical tensions involving major economies such as the US and Russia, may pose risks to this growth forecast.
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