The Central Bank of Kenya’s Monetary Policy Committee (MPC) reduced the benchmark Central Bank Rate (CBR) by 25 basis points to 9.75%, marking the first return to single digits since May 2023.
This decision, made at the MPC meeting on June 10, 2025, continues the monetary easing cycle aimed at boosting lending and supporting economic growth amid easing inflationary pressures.
“In view of the prevailing macroeconomic conditions, the Committee concluded that there was scope for a further easing of the monetary policy stance,” said CBK Governor Kamau Thugge, who chairs the MPC.
“This is aimed at stimulating lending by banks to the private sector and supporting economic activity while ensuring inflationary expectations remain firmly anchored and the exchange rate remains stable.”
Since August 2024, the CBK has implemented six consecutive rate cuts, lowering the CBR from 13.00% to 9.75%.
Revised Economic Growth Outlook
The MPC has revised Kenya’s GDP growth forecast for 2025 downward from 5.4% to 5.2%, citing higher tariffs on trade as a key factor.
The committee noted, “The projected growth of the economy in 2025 has been revised to 5.2 per cent from 5.4 per cent, on account of higher trade tariffs.”
However, it highlighted that “the resilience of key service sectors and agriculture, expected recovery in the growth of credit to the private sector, and improved exports are expected to support the pickup of growth in 2025.”
Kenya’s economy grew by 4.7% in 2024, down from 5.7% in 2023, reflecting slower growth across most sectors.
Early 2025 data suggests a rebound supported by resilient services and agriculture sectors, improved exports, and recovering private sector credit.
Inflation and Monetary Policy Considerations
Inflation in Kenya declined to 3.8% in May 2025 from 4.1% in April, remaining well below the CBK’s target range of 5±2.5%.
Non-core inflation eased to 6.0%, driven by lower food and energy prices, including reductions in electricity tariffs, while core inflation edged up slightly to 2.8%, mainly due to higher processed food prices.
The MPC emphasized that inflationary pressures are expected to remain contained in the near term, supporting the decision to ease monetary policy further.
Key Economic Indicators
- Current Account Deficit: Narrowed to 1.8% of GDP in the 12 months to April 2025, supported by strong exports and diaspora remittances.
- Foreign Exchange Reserves: Stood at USD 10.8 billion, equivalent to 4.75 months of import cover.
- Private Sector Credit Growth: Rose to 2.0% in May 2025, reversing earlier declines.
- Non-Performing Loans (NPLs): Slightly increased to 17.6% in April, with banks maintaining adequate provisioning.
Outlook and Future MPC Meetings
The MPC reaffirmed its commitment to closely monitor the impact of the rate cut and broader economic developments.
Governor Thugge stated, “The committee will continue to closely monitor the impact of this policy decision, as well as developments in the global and domestic economy. It stands ready to take further action as necessary in line with its mandate.”
The next MPC meeting is scheduled for August 2025.
Kenya to Engage IMF on New Funding Arrangement
In a related development, CBK Governor Kamau Thugge confirmed that Kenya will begin discussions with the International Monetary Fund (IMF) in September 2025 regarding a new funding arrangement and an Article IV consultation.
“We are indeed having discussions with the IMF, and the government did send a letter to the IMF requesting to negotiate a new arrangement. We are expecting an IMF team to come in September to start discussions on the Article IV consultation,” said Thugge.
This engagement is part of the IMF’s regular surveillance process and reflects Kenya’s efforts to secure additional financing to stabilise the economy amid external and internal shocks. Kenya is currently under an Extended Fund Facility (EFF) and Extended Credit Facility (ECF) program with the IMF, which is nearing its conclusion.
