The Central Bank of Kenya (CBK) has reduced its benchmark lending rate to 10.75%, the lowest level seen in the past year. This move aims to make credit more affordable for businesses and individuals, thereby supporting economic activity that has shown signs of decelerating in 2024.
The CBK also lowered the Cash Reserve Ratio (CRR) from 4.25% to 3.25%, a measure designed to free up more funds for commercial banks. By doing so, the central bank hopes to encourage lending to the private sector, a critical driver of economic growth. The reduction in both the lending rate and the CRR signals CBK’s commitment to easing the cost of credit, which has remained a significant concern for borrowers, particularly in an environment of high inflation and increased living costs.
Governor Dr. Kamau Thugge, who chairs the Monetary Policy Committee, emphasized that the move reflects the CBK’s response to slowing economic growth. According to the central bank, the country’s economic performance has been weaker than anticipated this year, with the slowdown exacerbating challenges for businesses and consumers alike.
The reduction in lending rates is expected to result in lower interest rates for loans and credit facilities, provided that commercial banks pass on these benefits to their customers. However, in the event that banks delay or fail to adjust their rates in line with the new policy, Dr. Thugge warned that the regulator would take further actions, including imposing penalties on banks that do not comply. This step is intended to ensure that the reduction in the CBK’s policy rate translates directly into lower costs for borrowers.
The central bank’s decision comes at a time when inflationary pressures have been affecting the cost of living. The hope is that by lowering borrowing costs, businesses will be able to invest more in growth and expansion, while consumers will experience some relief in terms of loan repayments.
While the immediate effects of the rate cuts remain to be seen, the decision is widely regarded as a proactive step to reinvigorate the economy. If commercial banks align with the new policy, there could be tangible benefits for both borrowers and the broader economy in the months ahead.
