The Central Bank of Kenya (CBK), through its Monetary Policy Committee (MPC), has reduced the benchmark Central Bank Rate (CBR) by 25 basis points to 9.75% from 10.00%, bringing it back into single-digit territory for the first time since May 2023. This marks the sixth consecutive rate cut since August 2024, during which the CBR has steadily declined from 13.00% to 9.75%.
The rate cut signals the CBK’s continued commitment to monetary easing in a bid to stimulate credit growth and support economic recovery, particularly as inflation continues to ease. In May 2025, Kenya’s overall inflation rate dropped to 3.8%, down from 4.1% in April. This figure remains comfortably within the CBK’s target range of 2.5% to 7.5%. A decline in non-core inflation, driven by falling food and energy prices, helped bring down the headline rate, even as core inflation edged slightly higher to 2.8% due to rising costs of processed foods.
The MPC also revised its economic growth projection for 2025, lowering it from 5.4% to 5.2%. The adjustment reflects the anticipated negative impact of increased tariffs on trade, which are expected to have knock-on effects on several key economic sectors. Despite this, the committee remains optimistic, citing the resilience of the services and agricultural sectors, improving export performance, and an expected recovery in private sector credit growth as factors that will underpin economic activity.
In its statement, the MPC emphasized that recent macroeconomic indicators support the current policy stance. The country’s current account deficit narrowed to 1.8% of GDP in the 12 months leading to April 2025, thanks in part to robust export growth and strong remittance inflows from the diaspora. Additionally, Kenya’s foreign exchange reserves stood at USD 10.8 billion, providing 4.75 months’ worth of import cover—well above the statutory minimum of 4.0-months of import cover.
Private sector credit growth has also shown signs of recovery, rising to 2.0% in May 2025 after months of stagnation. However, the level of non-performing loans (NPLs) remains a concern, having increased slightly to 17.6% in April compared to 17.2% in February. Despite this, banks are reported to be adequately capitalized and well-provisioned against potential losses.
Looking ahead, the CBK expects inflation to remain below the mid-point of its target range in the near term, assuming food and energy prices remain stable. The next MPC meeting is scheduled for August 2025.
