The Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) has announced a reduction in the Central Bank Rate (CBR) from 12.00 percent to 11.25 percent to stimulate economic growth.
This means that Kenyans will be able to enjoy cheaper loans for various items including businesses, homes, cars, and more.
In its report published on Wednesday, February 5, the MPC cited a slowdown in economic growth as one of the primary reasons for the rate cut, noting that economic activity had decelerated in the first half of 2024.
Further, the committee noted that overall inflation was expected to remain below the midpoint of the target range in the near term.
This according to CBK, is supported by low fuel inflation, stable food inflation, and exchange rate stability.
Additionally, the committee noted that central banks in the major economies had lowered their interest rates further, with expectations of a gradual pace of reductions in the coming months.
“The MPC noted economic growth in the first half of 2024 had decelerated, and therefore concluded that there was scope for a further easing of the monetary policy stance to support economic activity while ensuring exchange rate stability.
“Therefore, the Committee decided to lower the Central Bank Rate (CBR) from 12.00 percent to 11.25 percent,” the report read in part.
Also Read: CBK Reveals Banks with Lowest and Highest Loan Rates in Latest Report
Cheaper Loans and What Reduced CBR Means
When the Central Bank Rate (CBR) is reduced, it generally means that the central bank is making borrowing cheaper for commercial banks.
Consequently, banks may lower their lending rates to consumers and businesses to encourage borrowing by individuals and companies.
Also, by making credit cheaper, the central bank aims to stimulate spending and investment in the economy.
“The MPC will 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,” added the committee.
Also Read: CBK Reduces Interest Rate on Loans
Other Highlights from the CBK Report
Ahead of the Monetary Policy Committee (MPC) meeting, the findings from the CEOs Survey and Market Perceptions Survey revealed sustained optimism about business activity and economic growth prospects for the following 12 months.
The survey’s prediction was informed by a macroeconomic environment characterized by low inflation, exchange rate stability, and an expected decline in interest rates.
Additionally, strong agricultural performance, driven by favourable weather conditions, and improved global growth prospects have contributed to the positive outlook.
However, respondents also raised concerns about the high cost of doing business, subdued consumer demand, and the increasing geopolitical tensions that could affect the economy.
In terms of the current account, the deficit is estimated at 3.8% of GDP for the 12 months leading up to October 2024, slightly higher than the 3.7% recorded during the same period in 2023.
It is expected to widen to 4.0% of GDP in both 2024 and 2025.
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