The Central Bank of Kenya (CBK) has reduced its benchmark rate for the 10th time in a row to encourage lending to the private sector.
The CBK cut the rate to 8.75 percent from 9.00 percent previously and said the decision aims to support earlier measures designed to stimulate credit growth.
It brushed aside an appeal by the bankers’ lobby to hold the rate steady and avoid disrupting the transition of existing loans to the new risk-based pricing framework this month.
This puts additional pressure on banks to lower their lending rates further amid threats of regulatory action to make loans cheaper and boost lending to households and firms.
Lending grew marginally to 6.4 percent in the year to January, having stood at 6.3 percent in the same period to November.
The central bank says the ideal rate to support economic growth is between 12 percent and 15 percent.
Stable inflation that stood at 4.4 percent in January compared to 4.5 percent in December 2025, and an unchanging shilling against the dollar at Sh129.
The ratio of non-perform ing loans (NPLs) to gross loans also declined to 15.5 percent in January from 16.5 percent in November 2025, following a drop in lending rates and increased economic activities.
The Central Bank Rate (CBR) or benchmark rate has dropped a cumulative 4.25 percentage points from 13 percent in August 2024, when the current easing cycle began.
Average commercial banks’ lending rates stood at 14.8 percent in January 2026, down from 15.0 percent in October 2025 and 17.2 percent in November 2024.
“Having considered these developments, the MPC therefore concluded that there was scope for a further easing of the monetary policy stance by reducing the CBR by 25 basis points,” said the CBK in its release after the meeting.
“This will augment the previous policy actions 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.”
With the key macroeconomic indicators stabilising and the improvement in the banking sector asset quality, the CBK is hoping the new cut will push private sector credit growth into the double digits and rev up GDP growth.
While the lending growth has improved over the past year from the contraction of 2.9 percent in January 2025, it remains below the double-digit averages last seen in 2023.
The introduction of the new common base for bank loans was among the monetary policy measures adopted by the CBK last year to unlock credit to homes and businesses, alongside the consecutive rate cuts that were meant to make loans more affordable.
Each bank was previously using its own base rate before adding a premium to cater for costs and profit, with customers identifying the opacity of this arrangement as one of the causes for expensive credit.
Commercial banks shifted to the new loan pricing framework on December 1, 2025 for new facilities, while existing loans are to be fully transitioned by February 28, 2026.
Further to the rate cut, the CBK also tweaked the interest rate corridor around the Kesonia rate, to align it closer to the CBR and improve the transmission of monetary policy. The overnight rate will now be held within a corridor of plus or minus 0.5 percentage points of the prevailing CBR, down from the previous limit of 0.75 percentage points.
At the same time, the applicable interest rate on the discount window (where banks borrow from CBK on an emergency basis) has also been reduced to 0.5 percentage points above CBR from the previous 0.75 percentage points.
Ahead of the latest MPC meeting, the banks had appealed for a pause in the base rate to help make the February transition of existing loan rates to Kesonia easier. They also pointed to potential inflationary pressures from higher food prices due to the ongoing dry spell across the food basket zones as another reason for a hold in the rate.
“This move will allow the full transmission of previous CBR cuts through the market and ensure a non-disruptive transition of the entire banking sector’s Kenya shilling variable rate loan book to the revised risk-based pricing framework scheduled to be complete by the end of February 2026,” said the KBA in its statement dated February 9.
“Some global economies, such as the US, have paused policy rate cuts… going forward, these policy rates are expected to impact the Kenyan economy through capital flows and exchange rate pressures, if not matched by a corresponding decision on the local policy rate.”
In their presentation before the December 2025 MPC meeting, the banks had called for a rate cut to boost the pace of private sector lending and reduce loan defaults.
