The Central Bank of Kenya’s Monetary Policy Committee (MPC) has reduced the Central Bank Rate (CBR) from 12.00% to 11.25%. This move aims to further ease the monetary policy stance, stimulate economic activity, and ensure exchange rate stability. In its statement, the MPC acknowledged that Kenya’s economic growth in the first half of 2024 had decelerated, while short-term rates on government securities declined sharply in line with the CBR. However, banks have yet to proportionately lower their lending rates.
“The MPC urges banks to take necessary steps to lower their lending rates to stimulate credit to the private sector and foster more economic activity. The committee will closely monitor the impact of these policy measures and developments in the global and domestic economy, ready to take further action as needed. The MPC will meet again in February 2025,” said MPC Chairman Dr. Kamau Thugge, who also serves as the Central Bank Governor.
During its Thursday meeting, the MPC reviewed the outcomes of its previous decisions and measures implemented to anchor inflation expectations and maintain exchange rate stability. The Committee highlighted an improved global economic outlook with a projected growth rate of 3.2% for both 2024 and 2025, supported by robust performance in the U.S., India, and the U.K. However, global risks persist, particularly from the Middle East conflict and the Russia-Ukraine war, which could disrupt this recovery.
Kenya’s inflation remained stable at 2.8% in November 2024, slightly up from 2.7% in October, well below the mid-point of the 5±2.5% target range. Food inflation increased modestly to 4.5% due to higher edible oil prices, while fuel inflation remained negative at -1.6% in November, attributed to lower electricity and pump prices. Non-food non-fuel (NFNF) inflation eased marginally to 3.2%, reflecting subdued demand pressures.
The MPC projects that inflation will remain below the mid-point of the target range in the near term, supported by improved food supply, lower fuel prices, and a stable exchange rate. This positive outlook comes despite a slowdown in real GDP growth, which averaged 4.8% in the first half of 2024 compared to 5.5% during the same period in 2023. The economy is expected to grow by 5.1% in 2024 and 5.5% in 2025, driven by resilient service sectors, agriculture, and stronger exports.
“The Committee determined that there was scope for further easing of the monetary policy stance to support economic activity and ensure exchange rate stability,” Dr. Thugge added.
The MPC’s decision emphasizes the need for banks to align their rates with the lowered CBR to stimulate credit access and drive economic growth. As Kenya navigates both domestic challenges and global uncertainties, the CBK’s actions will play a crucial role in stabilizing the economy and fostering sustainable growth.
