The Kenya Bankers Association (KBA) is calling on the Central Bank of Kenya (CBK) to lower the Central Bank Rate (CBR) during its upcoming Monetary Policy Committee (MPC) meeting scheduled for August 12, 2025.
The bankers said the move is aimed at stimulating credit growth and anchoring economic recovery.
In a Research Note released by the Centre for Research on Financial Markets and Policy, KBA observed that several economic indicators present a strong case for monetary easing, including stable inflation, a resilient exchange rate, and easing global interest rates.
“Inflation and inflation expectations remain well anchored within the target range,” the research note reads.
“In view of these developments, and given favourable external interest rate differential, we view that there is scope to cut the Central Bank Rate (CBR) to support credit growth and anchor economic growth.”
Kenyan Banks Call for CBK Rate Cut to Boost Lending and Economic Recovery
KBA noted that this will complement the structured efforts to resolve the long-standing Government pending bills that are expected to improve the non-performing loans (NPLs) ratios in the market.
Despite some resilience in the economy, KBA noted that growth remains fragile and in need of stronger policy support.
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It also pointed to weak credit growth, which has persisted even after recent reductions in lending rates, as businesses adopt a cautious stance.
“Credit growth recovery is yet to pick up despite notable reductions in lending rates, largely reflecting protracted delay in asset quality improvement and credit consumers taking a wait-and-see attitude on investments in anticipation of lower interest rates in the near to medium term,” read the research in part.
“With weak credit growth and slowing business activity, the Centre notes that there is room to cut the Central Bank Rate to support lending and stimulate economic recovery.”
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KBA Cites Weak Lending, High NPLs in Push for CBK Rate Cut
In May 2025, credit to the private sector growth increased to 2.0%, up from 0.4% in April 2025 and -2.9% in January 2025.
The slow recovery largely reflects the impact of declining lending rates, with the average commercial bank lending rate easing to 15.4% in May 2025, from 15.7% in April 2025 and 17.2% in November 2024.
From the policy front, the average interbank rate continued to oscillate within its defined policy corridor, but generally mirrored a decline from 11.06% on January 2, 2025, to 9.6% by August 1, 2025.
However, the sector’s asset quality deteriorated further, with the NPL ratio edging up to 17.6% in April 2025, driven mainly by the real estate, trade, manufacturing, and personal lending segments.
“While banks remain adequately capitalized and liquid, lending activity remains subdued due to weak borrower creditworthiness and tepid demand, pointing to structural frictions impeding the transmission of lower interest rates to increased credit uptake,” KBA noted.
A resolution of the NPL problem, through such initiatives as the planned securitization of bills in the construction sector, will support a faster recovery in private sector credit, leading to a stronger rebound of the broad money supply in the economy towards its long-term mean growth.
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