Kenya’s central bank announced a reduction in its benchmark lending rate from 12.75% to 12.00% on Tuesday. This decision aims to stimulate credit to the private sector, according to the bank’s monetary policy committee (MPC).
This rate cut follows a previous 25 basis-point reduction in August, marking the first decrease in nearly four years. The central bank has also revised its economic growth forecast for 2024, citing a slowdown in the second quarter as a contributing factor.
“The MPC noted the sharp deceleration in credit to the private sector and the slowdown in growth,” the bank stated. It emphasized that there was room for further easing of the monetary policy.
Finance Minister John Mbadi recently suggested that the central bank should lower its lending rate due to declining inflation. Inflation fell to 3.6% year-on-year in September, down from 4.4% in August. It was recorded at 4.3% in July, remaining within the government’s target range of 2.5% to 7.5%.
Prior to the recent decision, the Kenya Bankers’ Association expressed that there was an opportunity for a “decisive policy rate cut.” They advocated for this move to enhance economic growth by encouraging recovery in private sector credit.
The central bank revised its growth forecast for 2024 down to 5.1%, reduced from 5.4%. This adjustment follows slower growth of 4.6% year-on-year in the second quarter, a decrease from 5.6% in the same quarter last year. However, the bank remains optimistic about a projected growth rate of 5.5% in 2025.
