Kenya’s central bank has taken decisive action to stimulate economic growth by cutting its benchmark lending rate. This move, announced on Wednesday, February 5, 2025, aims to encourage lending and support the country’s economic recovery[5].
Key Highlights of the Rate Cut
- Benchmark Lending Rate Reduction: The central bank has lowered its main lending rate by 50 basis points to 10.75%[5].
- Cash Reserve Ratio Adjustment: To further support lending, the Cash Reserve Ratio for banks has been reduced by 100 basis points to 3.25%[5].
Rationale Behind the Decision
The Central Bank of Kenya (CBK) is proactively addressing the challenges of high lending rates despite previous rate cuts[3]. The goal is to ensure that the benefits of reduced borrowing costs are passed on to consumers and businesses, thereby stimulating economic activity[1].
CBK’s Efforts to Enforce Compliance
- Inspections and Penalties: The CBK is conducting physical inspections of banks to ensure compliance with the rate-cut directives[1].
- Aggressive Stance: The regulator is prepared to impose daily fines and other financial penalties on banks that fail to reduce their lending rates[1].
Impact on the Economy
- Stimulating Lending: The rate cut is expected to encourage banks to lend more, making credit more accessible and affordable[1].
- Supporting Economic Recovery: By lowering borrowing costs, the CBK aims to support economic recovery and improve access to credit for businesses and individuals[1].
- Managing Non-Performing Loans: Lower rates could also help banks manage rising non-performing loans, particularly in key sectors such as trade, real estate, and manufacturing[1].
Bank Responses to the Rate Cut
KCB’s Lending Rate Reduction
Kenya Commercial Bank (KCB), the country’s largest bank, has already responded by lowering its lending rate from 15.6% to 14.6%, effective February 10, 2025[1].
Co-op Bank’s Significant Cut
Co-operative Bank Group has announced a two percent reduction in its base lending rate from 16.5 percent to 14.5 percent, effective immediately[2]. The effective lending rate will be the base lending rate of 14.5 percent per annum plus a margin of between zero percent to four percent, per annum, based on the individual customer’s credit profile[2].
Looking Ahead
The CBK’s intervention is a strategic move to boost economic growth, which slowed to 4.6% in 2024 but is projected to expand by 5.4% in 2025[3]. The central bank expects key service sectors, agriculture, and credit recovery to support this growth[3].
Citations:
[1] https://techcabal.com/2025/02/10/kcb-cuts-lending-rate-to-14-6-percent/
[2] https://www.the-star.co.ke/business/kenya/2025-02-10-co-op-bank-responds-first-cuts-lending-rate-by-significant-two-per-cent
[3] https://dabafinance.com/en/news/kenyan-central-bank-pushes-banks-to-cut-lending-rates
[4] https://www.astralcodexten.com/p/money-saved-by-canceling-programs/comments?triedRedirect=true
[5] https://www.cnbcafrica.com/2025/kenya-central-bank-cuts-main-lending-rate-to-10-75/
[6] https://www.brecorder.com/live
[7] https://www.dailymaverick.co.za/article/2025-02-05-investors-on-guard-as-us-tariff-threats-evolve/?topreads=card
[8] https://english.news.cn/africa/20250206/978a7263e3e74c0fbb1fd02891221f23/c.html
[9] https://www.dailymaverick.co.za/article/2025-02-03-donald-trump-elon-musk-and-afriforum-an-unholy-trinity-pushing-back-on-land-reform/?topreads=card
[10] https://www.internationalhealthpolicies.org/wp-content/uploads/2025/02/IHPn815pgnrs.pdf
