The Central Bank of Kenya (CBK) has lowered its base lending rate from 9.25 per cent to 9 per cent, marking the ninth consecutive rate cut and signaling continued monetary easing aimed at stimulating economic activity.
The decision was made by the Monetary Policy Committee (MPC) during its final meeting of the year, with the rate reduced by 25 basis points. This brings the cumulative cut to 400 basis points, the largest sustained interest rate reduction in Kenya’s monetary policy history.
Boosting Credit and Economic Growth
CBK Governor Kamau Thugge said the move builds on earlier policy actions designed to encourage banks to increase lending to the private sector. He noted that private sector credit growth has shown signs of recovery, rising to 6.3 per cent in November from 5.9 per cent in October.
The Central Bank believes lower borrowing costs will support businesses, households, and overall economic activity at a time when the economy is emerging from a prolonged period of tight financial conditions.
A Look Back: Kenya’s Lending Rate History
Kenya’s lending rates have historically been volatile. In the early 1990s, interest rates peaked above 30 per cent following financial liberalisation and macroeconomic instability. By the mid-2000s, rates had stabilised, with the Central Bank Rate (CBR) averaging between 6 and 10 per cent during periods of strong economic growth.
In 2011, inflationary pressures pushed the CBR to a record 18 per cent, triggering sharp increases in commercial lending rates. Borrowers at the time faced loan interest rates exceeding 25 per cent, significantly slowing credit uptake.
The introduction of interest rate caps in 2016 fixed lending rates at no more than four percentage points above the CBR, but this led to a contraction in credit, especially to small and medium-sized enterprises. The caps were repealed in 2019, allowing banks to price risk more freely but also leading to renewed concerns over high borrowing costs.
The current easing cycle marks a sharp departure from the tightening phase seen in recent years, when the policy rate climbed to 13 per cent amid inflation and currency pressures.
Risk-Based Pricing Set to Reshape Lending
CBK expressed optimism that the risk-based credit pricing model, expected to be fully operational by March 2026, will strengthen the transmission of monetary policy decisions to bank lending rates.
Under the new framework, banks will be required to clearly disclose how they price loans, linking interest rates to borrower risk profiles. The Central Bank says this will improve transparency, enhance competition, and ensure that rate cuts are more effectively passed on to consumers and businesses.
Outlook for Borrowers
With the base lending rate now at 9 per cent, Kenya enters one of its most accommodative monetary policy environments in decades. Analysts expect commercial lending rates to gradually ease further, provided inflation remains stable and the shilling continues to show resilience.
CBK maintains that sustained credit growth, combined with transparent pricing and improved access to financing, will be critical to supporting long-term economic recovery and job creation.
We bring you the latest news from the larger Gusii region and beyond.
