The Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) has lowered the Central Bank Rate (CBR) by 75 basis points to 10.00% at its meeting on April 8th, 2025. This marks the fifth consecutive cut in the CBR, bringing the rate to its lowest level in several years.
The MPC also made adjustments to the interbank rate and the Discount Window facility. The Discount Window is a facility through which banks can borrow short-term funds from the Central Bank. By lowering the Discount Window rate, the MPC makes it less expensive for banks to access liquidity. This could encourage banks to borrow more from the CBK and, in turn, lend more to businesses and individuals. The interest rate on the Discount Window was lowered from 300 basis points above the CBR to 75 basis points, which now aligns with the upper bound of the interest rate corridor.
The interbank rate corridor was narrowed from 150 basis points to 75 basis points, aiming to stabilize the interbank rate and bring it closer to the CBR. This means that the interbank rate, which is the rate at which banks lend to each other, is now allowed to fluctuate within a smaller range around the Central Bank Rate (CBR). By reducing the range of potential fluctuations, the MPC hopes to create a more stable interbank market. This would make it easier for banks to predict and manage their borrowing and lending costs. The narrowing of the corridor also brings the interbank rate closer to the CBR. This alignment could encourage banks to more closely align their lending rates with the CBR, potentially leading to more consistent and predictable interest rates for borrowers. These changes are intended to encourage banks to lend more to the private sector, thereby supporting economic activity and exchange rate stability.
The committee noted that global growth in 2024 showed steady recovery however, the outlook for 2025 remained uncertain due to escalating trade tensions, new tariffs, and geopolitical conflicts such as the Russia- Ukraine war and Middle East unrest.
Subsequent to the latest lowering of the Central Bank Rate (CBR) by the Central Bank of Kenya, KCB Bank Kenya has reduced its base lending rate from 14.6% to 13.85% per annum. The rate is effective April 11, 2025 for new loan facilities and May 11, 2025 for existing facilities. The final lending rate is based on a customer-specific margin, adjusted to the base rate. This applies to Kenya Shilling-denominated facilities and excludes fixed-rate credit facilities
Kenya’s real GDP growth slowed to 4.6% in 2024, down from 5.6% in 2023. However, the economy is projected to rebound to 5.4% in 2025, fueled by improvements in the agriculture and services sectors, a significant surge in private sector credit growth, and stronger exports. The robust growth in private sector credit is expected to stimulate investment and boost economic activity. This will be further supported by the strong export performance, driven by increased demand for Kenyan goods such as tea, coffee, horticulture products, and manufactured goods in global markets.
The recent revision of Kenya’s balance of payments data by the Kenya National Bureau of Statistics (KNBS) sheds light on the ongoing efforts to improve the accuracy and comprehensiveness of economic indicators. This revision, which focused on refining the recording of cross-border transactions related to petroleum products under government-to-government (G-2-G) contracts and incorporating alternative data sources to enhance the accuracy of international trade in services data, particularly travel and financial services, has yielded significant results. The current account deficit, which reflects the balance of trade in goods, services, and income, narrowed to 3.1% of GDP in February 2025, down from 3.3% a year earlier. This positive development was driven by a 13.1% increase in exports, resilient diaspora remittances (+14.5%), and reduced oil imports.
The narrowing of the current account deficit is a positive sign for the Kenyan economy, indicating a stronger external position. Looking ahead, the deficit is projected to decline further to 2.8% of the GDP in 2025, with a surplus expected in the overall balance of payments.. The next Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) meeting, is scheduled for June 2025.
