The Central Bank of Kenya (CBK) has lowered its key interest rate by 50 basis points to 10.75%, marking the fourth consecutive rate cut.
This move aims to stimulate lending and support economic growth, which decelerated in 2024.
The Monetary Policy Committee (MPC) cited stable inflation, driven by low energy prices and a stable shilling, as a key factor in this decision.
“The committee noted that economic growth decelerated in 2024, and therefore there was scope for a further easing of the monetary policy stance to support economic activity, while ensuring exchange rate stability,” it said in a statement.
Key Measures
- Interest Rate Cut: The key interest rate was lowered to 10.75%, aiming to encourage lending and boost economic activity.
- Cash Reserve Ratio Reduction: The Cash Reserve Ratio (CRR) was reduced by 100 basis points to 3.25% to enhance liquidity further.
- Bank Inspections: On-site bank inspections will ensure that banks pass on the benefits of lower funding costs to borrowers.
Economic Outlook
- The CBK projects economic growth of 5.4% in 2025, driven by factors such as the resilience of key sectors (agriculture, services), improved credit growth, and stronger exports.
- The current account deficit is projected to be 3.8% of GDP in 2025, slightly higher than the 2024 estimate.
- Inflation is expected to remain within the target range of 2.5%–7.5%.
What is the Cash Reserve Ratio (CRR)?
Cash Reserve Ratio (CRR) is the percentage of total customer deposits that commercial banks are legally required to hold as reserves with the central bank.
These reserves can be held in the form of cash or deposits with the central bank.
The primary function of the CRR is to ensure that banks have sufficient liquidity to meet customer withdrawal demands. By controlling the amount of money banks can lend, the central bank utilizes the CRR as a key monetary policy tool to manage the money supply in the economy.
