CBK cuts key lending rate, defies banks' calls for sharper cuts
Business
By
Brian Ngugi
| Oct 07, 2025
The Central Bank of Kenya (CBK) has cut its benchmark lending rate, delivering a smaller reduction than commercial banks had sought to stimulate sluggish credit growth, highlighting a growing tussle over the cost of borrowing as the economy slows.
The Monetary Policy Committee (MPC) on Tuesday lowered the Central Bank Rate (CBR) by 25 basis points to 9.25 per cent, marking the eighth reduction in an easing cycle that began last year, but falling short of the banking sector's push for more aggressive action to make cash cheaper.
The decision comes after the Kenya Bankers Association (KBA) publicly urged the MPC for a significant cut, arguing that low inflation and a stable shilling provided ample room to stimulate the economy.
However, CBK's cautious approach is seen to underline ongoing concerns about banks' slow pace in passing on the benefits of earlier rate reductions to borrowers - a practice that has drawn criticism from businesses and the regulator and created tension between the sector and its regulator.
READ MORE
New push for pension funds in the region to pool resources
African firms race to lead continent's digital transformation
Octagon Africa, Alexforbes partner to expand retirement savings for MSMEs
Lamu awaken with port business, property, tourism and agriculture
Kindiki calls for digital trade overhaul as Kenya takes COMESA chairmanship
Boost for tourism as 500 tour operators gather in Malindi
How KenGen locked out bidder for its carbon credits
Why CBK, banks are fighting over cheaper credit
Regulatory gaps, discounts: Red flags mount over EAPC stake sale
Despite the CBK cutting its benchmark rate seven times since last year, including a 25-basis-point cut in August, average commercial bank lending rates remained stubbornly high at 15.1 per cent as of September, stifling borrowing and economic growth.
In its statement, the MPC said it saw room for further easing, but opted for a measured approach.
“The committee therefore concluded that there was scope for a further easing of the monetary policy stance by reducing the CBR by 25 basis points," CBK governor and MPC chairman Kamau Thugge said in a statement.
"This will augment the previous policy actions aimed at stimulating lending by banks to the private sector and supporting economic activity."
CBK is in the midst of implementing a significant overhaul of how loans are priced, known as the revised Risk-Based Credit Pricing model, which aims to make the transmission of its policy decisions faster and more transparent.
The MPC noted the new model, fully effective from March 2026, "will improve the transmission of monetary policy decisions to commercial banks’ lending interest rates, and enhance transparency in the pricing of loans by banks."
Private sector credit growth, though improving to 5.0 per cent in September from 3.3 per cent in August, remains below levels considered supportive of robust economic expansion.
The ratio of non-performing loans remains elevated at 17.1 per cent.
The MPC's decision reflects a balancing act between supporting economic growth, which hit 5.0 per cent in the second quarter, and safeguarding stability, with inflation at 4.6 per cent in September, still within the government's target range of 5 plus or minus 2.5 per cent.
The MPC said it "will closely monitor the impact of this policy decision as well as developments in the global and domestic economy and stands ready to take further action as necessary in line with its mandate."