The Central Bank of Kenya (CBK) has cut the benchmark lending rate by 0.75% to 12.00%, as expected, to support economic activity.
The decision, delivered by the Monetary Policy Committee (MPC), was fueled by the easing inflation coupled with the slowdown in private sector growth in the Q2 2024. Kenya’s inflation has eased progressively to the CBK’s lower bound target of 2.5% – 7.5% with the latest data showing a 3.6% according to the Statistics body.Private sector credit growth decelerated to 1.3% in August from 3.7% in June. The CBK noted an uptick in gross non-performing loans which stood at 16.7% in August compared to 16.3% in June.
“The MPC also noted the sharp deceleration in credit to the private sector, and the slowdown in growth in the second quarter of 2024, and concluded that there was scope for a further easing of the monetary policy stance to support economic activity, while ensuring exchange rate stability,” noted the MPC in a statement.
The Kenyan Shilling has remained stable, appreciating by 17.4% since the beginning of the year from lows of 160 in February.
The gain is attributable to a blend of factors including long term transitory effects of the tightened monetary policy in the hindquarter of 2023, the successful Eurobond buyback in February and the subsequent settlement of the June sovereign maturity and increased foreign direct inflows.
Previous stubborn inflation and a weakening shilling prompted the CBK to raise the key lending rate from 10.5% to 12.5% in December 2023, before hiking it to 13% in February. This decrease marks the beginning of an easing cycle, mimicking other emerging economies including South Africa, Ghana and Uganda.
The move comes weeks after the US Federal reserve delivered a 50 basis points cut with anticipation of further rate cuts. The European Central Bank similarly delivered a 25 basis points rate cut in September in response to softening inflation and a slowdown in the economy.
The MPC is expected to hold its last meeting of 2024 in December.