Kenya central bank cuts interest rate

Kenya’s central bank has lowered its benchmark lending rate for the first time in four years. The Central Bank of Kenya (CBK) cut the rate by 25 basis points to 12.75% on August 6, 2024. The move aims to gradually ease monetary policy while keeping the exchange rate stable. It comes as global central banks are lowering rates and easing monetary policies to support economic growth. CBK Governor Kamau Thugge said in a statement, “The MPC concluded that there was scope for a gradual easing of the monetary policy stance while ensuring continued exchange rate stability.” Kenya’s inflation rate dropped to 4.3% in July, helped by lower food and fuel costs. The country’s real GDP grew by 5.0% in the first quarter of 2024, despite challenges in manufacturing and construction. Strong performance in agriculture and services has kept the economy resilient.

Kenya central bank lowers lending rate

The rate cut is expected to provide relief to borrowers who have been struggling with high loan-servicing costs. Average lending rates by commercial banks had climbed as high as 18% due to the high CBR, inflation, and increased taxes. This latest reduction marks the CBK’s first rate cut since March 2020, when the global Covid-19 pandemic led to high living costs and a cash crunch affecting all economic sectors. Kenya’s move aligns with a global trend of monetary policy relaxation as nations seek to balance economic growth and currency stability. Improved global growth prospects in the US, China, and India could further boost Kenya’s trade and investment opportunities. However, recent protests and high business costs in Kenya pose potential risks, requiring cautious optimism from investors. The country’s improved economic outlook, with projected annual growth of 5.4%, suggests a stable investment climate, but the complex economic landscape demands strategic navigation.