Kenyans are set to enjoy cheaper credit facilities after the Central Bank of Kenya (CBK) on Thursday, December 5 further lowered the base lending rate from 12.00 percent to 11.25 percent.
In a statement, the regulator said Monetary Policy Committee (MPC) arrived at the decision, which was influenced by a couple of factors.
“The MPC noted overall inflation was expected to remain below the midpoint of the target range in the near term, supported by low fuel inflation, stable food inflation, and exchange rate stability,” read the statement.
The Committee also took into account global monetary policies, noting, Central banks in major economies have lowered their interest rates further, with expectations of a gradual pace of reductions in the coming months.
CBK states factors that led it to lower interest rates on loans
Further, there was an acknowledgment of economic slowdown with the MPC observing, Economic growth in the first half of 2024 which had decelerated, thus justifying the need for a further easing of the monetary policy stance to support economic activity.
The Committee also observed that short-term rates on government securities had declined sharply in line with the CBR, but the banks had not responded by lowering their rates proportionately.
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It, therefore, urged the banks to take necessary steps to lower their lending rates, in order to stimulate credit to the private sector, and thereby stimulate more economic activity.
MPC pledged to closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to take further action as necessary in line with its mandate and also announced it will meet again in February 2025.
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Central Bank outlines economic conditions in Kenya
At the same time, the MPC outlined the economic conditions in Kenya, including a slowdown in Gross Domestic Product (GDP) growth from 5.5% to 4.8% in the first half of 2024, with expectations of recovery to 5.1% in 2024 and 5.5% in 2025.
The Committee also noted that inflation is low at 2.8%, below the target range midpoint, indicating a stable price environment.
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It also observed that Global growth is recovering with lower inflation in advanced economies, suggesting a more favorable international environment. However, there are risks due to geopolitical tensions.
Additionally, the committee also acknowledged that the Kenyan economy is experiencing stable food and fuel inflation, which supports the decision to adjust monetary policy.
It also stated that the agriculture sector is showing optimism, which could contribute to economic stability.
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