Kenya’s central bank has enacted a significant 75-basis-point reduction in its benchmark lending rate, lowering it to 11.25 percent in a decisive move to stimulate economic growth. This marks the third consecutive policy meeting resulting in a rate reduction, following similar adjustments in previous months, as monetary authorities respond to economic indicators.
The Monetary Policy Committee justified the substantial cut by citing controlled inflation levels, which remain within the government’s target range of 2.5 to 7.5 percent. November’s inflation rate registered at 2.8 percent, representing only a marginal increase from October’s 2.7 percent. This stability in price levels has provided policymakers with flexibility to pursue growth-oriented measures.
Banking sector representatives had advocated for meaningful rate reductions to influence market dynamics positively. While short-term government securities have shown responsiveness to previous policy adjustments, the committee noted commercial banks’ reluctance to proportionately reduce their lending rates, prompting calls for greater alignment with policy direction.
The central bank maintains its growth projections of 5.1 percent and 5.5 percent for the upcoming two years, despite acknowledging economic deceleration in early 2024. This economic outlook comes as the nation grapples with significant debt challenges and recent political tensions that forced the government to abandon planned tax increases worth approximately 346 billion shillings. The policy adjustment reflects a balanced approach between supporting growth and maintaining economic stability.