Central Bank of Kenya Cuts Base Lending Rate, Signals Cheaper Loans for Borrowers
- The Central Bank of Kenya's (CBK) Monetary Policy Committee (MPC) held its meeting on Tuesday, August 12
- The Monetary Policy Committee, chaired by CBK governor Kamau Thugge, explained why it cut the Central Bank Rate (CBR)
- MPC piled pressure on commercial banks to cut loan rates as the CBR is now at its lowest level since May 2023
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TUKO.co.ke journalist Japhet Ruto has over eight years of experience in financial, business, and technology reporting and offers deep insights into Kenyan and global economic trends.
The Central Bank of Kenya (CBK) has lowered its base lending rate from 9.75% to 9.5% to encourage lending to the private sector and stimulate economic growth.
Source: Twitter
This is the seventh consecutive reduction in the Central Bank Rate (CBR), increasing pressure on commercial banks to cut their loan rates.
This comes amid a delayed recovery in private sector lending and a persistently high nonperforming loan (NPL) ratio of 17.6% as of June 2025.
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The CBR has been reduced by 3.5% over the last year, from a high of 13% in August 2024.
Why did CBK cut the base lending rate?
In a statement on Tuesday, August 12, after a Monetary Policy Committee (MPC), the regulator noted that it believes the extra rate cut will prompt banks to lower lending costs.
This comes as the sector anticipates a new pricing regime that is anticipated to result in lower charges on loans for good borrowers.
"The committee concluded that there was room for additional monetary policy stance easing to complement the earlier measures meant to boost bank lending to the private sector and boost economic activity, while making sure inflationary expectations remained firmly anchored and the exchange rate remained stable," it stated.
At 9.5%, the CBR is now at its lowest level since May 2023, when Kamau Thugge succeeded Patrick Njoroge as the CBK governor.
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Why did the CBK raise the lending rate?
Thugge started the current easing cycle in August 2024 after raising the CBR to a 12-year high of 13% in February 2024 to stabilise the currency rate and inflation.
Lenders attribute the high credit costs to the current risk-based loan pricing mechanism, which has kept interest rates on commercial bank loans relatively high, despite the actions indicating decreased borrowing costs.
Between July 2024 and June 2025, the 38 licensed banks' overall weighted lending rates decreased by one percentage point as lenders mostly disregarded the CBR's sharp cutbacks, which also helped to drastically reduce their cost of funding during that time.
Source: Getty Images
Which banks pay high returns on deposits?
In June 2025, the CBK published the average interest rates for commercial banks.
The majority of the 38 banks, according to CBK data, provide high interest rates of up to 10% on their clients' fixed deposits.
For example, SBM Bank Kenya gave its clients an average interest rate of 9.77% on savings and deposits during the review period.
Other banks were the Commercial International Bank (CIB) Kenya Ltd - 9.99%, Access Bank Kenya Ltd - 10.11% and Paramount Bank Ltd - 10.42%.
Proofreading by Jackson Otukho, copy editor at TUKO.co.ke.
Source: TUKO.co.ke
