CBK sounds warning as it slashes lending rates

The Central Bank of Kenya has lowered its base lending rate by 50 basis points to 10.75 % down from 11.25 %, effectively cheapening interest charged on loans.
The Monetary Policy Committee chaired by CBK Governor Kamau Thugge, said that in order to further support the lowering of lending rates, the committee resolved to also lower the Cash Reserve Ratio by 100 basis points to 3.25% from 4.25 %.
“With these measures, banks are expected to take the necessary steps to lower their lending rates further, to stimulate growth in credit to the private sector, and support economic activity,” the CBK Governor said.
CBK’s foreign exchange reserves currently stand at $9,066 million, equivalent to 4.6 months of import cover, enough to provide a buffer against any short-term shocks in the foreign exchange market.
despite the lending rate being 11% since November, commercial banks have being charging more than 20%, hampering economic growth.
In a statement seen by Kurunzi News, Thugge said the lowering of the lending rate aligns with the trend in major economies, which have continued to lower their lending rates.
He adds that the MPC lowered the lending rate and CRR to support economic activity whilst ensuring exchange rate stability in cognisance of the fact that the Kenyan economy decelerated in 2024.
“The MPC noted that the reduction in the CRR will release additional liquidity to banks. This is expected to lower the cost of funds and lending rates, and support growth of credit to the private sector,” read the statement in a part.
The committee, however, noted with concern that despite the CBR having been lowered substantially since the MPC meeting of August 2024, lenders have only marginally lowered their interest rates.
To ensure compliance with the Risk-Based Credit Pricing Model,Thugge said the CBK has embarked on on-site inspection of banks to ascertain that they are reducing their interest rates in line with the RBCPM.
“Under the amendments to the Banking Act recently enacted by Parliament, any bank that has not passed on the benefits of reduced cost of funds to reduce lending rates, will be penalised in accordance with the law,” Thugge alarmed.
He said MPC will closely monitor the impact of its policy measures as well as developments in the global and domestic economy and will take further necessary action in line with its mandate when it meets next in April.
Meanwhile, the MPC said Kenya’s overall inflation rose marginally to 3.3% in January 2025 compared to 3.0% in December 2024, but it’s expected to remain below the midpoint of 5±2.5 percentage target range in the near term.
It said global headline inflation has moderated but the pace of decline has slowed down in major economies due to sticky core inflation.
Overall, the committee said global economic growth continues to recover and is projected to improve to 3.3% in 2025 from an estimate of 3.2 in 2024.