Commercial banks want the Central Bank of Kenya (CBK) to leave its benchmark rate unchanged so as not to interfere with the ongoing repricing of loans, amid transition to a new risk-based framework.
The Kenya Bankers Association (KBA), the sector lobby, says a hold in rates by the apex bank will avoid creating disruptions, even as non-banking players such as economists see the scope for further policy easing to support private sector credit recovery.
CBK’s key rate is tied at the hip with the re-pricing of loans where the largely adopted new benchmark rate is the Central Bank Rate (CBR).
The CBK has cut the benchmark rate in nine-consecutive meetings since August 2024, as it aimed to revitalise lending to households and businesses, after putting brakes on high inflation and exchange rate volatility. The CBR fell from 13 percent in August 2024 to 9 percent at present.
“We view that there is a merit to keep the CBR unchanged,” KBA said on Monday.
“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.”
Commercial banks are currently transitioning their older loan book (Kenya Shilling credit facilities disbursed before December 1,2025) to the new pricing framework by February 28, 2025.
New Kenya Shilling loans created from December 1, 2025 were automatically priced under the new model.
The new risk-based pricing framework creates a new benchmark for the costing of all commercial bank loans where most lenders have elected the CBR as an anchor.
A smaller share of banks has adopted the Kenya Shilling Overnight Interbank Average (Kesonia) as the pricing benchmark, while some use both CBR and Kesonia as the base. The total cost of credit is arrived at by adding a premium denoted as ‘K’, fees and charges to the chosen benchmark rate.
The new pricing framework is expected to reflect CBK’s policy direction as it closely mimics CBR.
CBK’s interest rate corridor keeps Kesonia, formerly the interbank rate, within a window of 0.75 percent above or below the CBR.
This means that changes to the CBR can be quickly reflected on market interest rates, where Kesonia falls when the benchmark rate is cut and rises when the rate is increased.
Non-bank analysts including economists have diverged from KBA by calling for a further CBR rate cut, as they see a further scope for policy easing with both inflation and the exchange rate remaining stable.
“The main goal of monetary policy is to maintain price stability and support economic growth, by controlling the money supply in the economy," a market analyst noted in a briefing note.
"We expect the MPC to cut the CBR to within a range of nine percent to 8.75 percent with their decision, mainly being supported by the need to support the economy."
January inflation fell marginally to 4.4 percent from 4.5 percent in December, to remain below the targeted midpoint of five percent.
The exchange rate has remained stable as the Kenya shilling keeps within a narrow-bound trading range around Sh129 against the US dollar.
Commercial banks’ lending to the private sector accelerated in November to 6.3 percent, marking its fastest expansion in 19 months. Private sector credit growth however remains below historical double-digit averages as non-performing loans (NPLs) deter banks from lending even as falling borrowing costs spur demand.
The ratio of gross non-performing loans (NPLs) to gross loans stood at 16.5 percent in November 2025 but was lower than 16.7 percent in October and 17.6 percent in August.
