Nairobi: The Monetary Policy Committee (MPC), which met on Tuesday, has lowered the Central Bank Rate (CBR) by 25 basis points to 9.75 percent from 10 percent. Central Bank of Kenya (CBK) Governor Dr. Kamau Thugge, who also chairs the MPC, noted that average lending rates in the domestic market have been in decline, with private sector credit growth showing modest recovery.
According to Kenya News Agency, Dr. Thugge explained that the Committee found room to further ease the monetary policy stance to boost previous efforts aimed at encouraging banks to lend more to the private sector and to support economic activity, while keeping inflation expectations stable and the exchange rate steady. The MPC plans to closely observe the effects of this decision and global and domestic economic trends, ready to take further steps as necessary.
Dr. Thugge mentioned that the Committee’s meeting took place amid significant uncertainties in the global growth outlook, stubbornly high inflation in developed economies, ongoing trade tensions, and persistent geopolitical conflicts. He pointed out that global growth is anticipated to be 2.8 percent in 2025, a decline from 3.3 percent in 2024, largely due to downward adjustments in growth projections for the United States and China because of increased tariffs on U.S. imports and retaliatory measures by trade partners.
He further noted that while the U.S. and China have withdrawn some of their previously declared tariffs, the results of trade discussions between the U.S. and its key partners remain unpredictable. Reduced global demand, particularly from China, and escalating geopolitical tensions in the Middle East and the Russia-Ukraine situation present significant risks to growth.
Dr. Thugge shared that global headline inflation has eased but is likely to decrease more slowly due to the anticipated inflationary pressures from raised trade tariffs. Central banks in major global economies have become more cautious in lowering policy rates.
He commented on the moderation of international oil prices due to increased production and less global demand, mainly from China, though the potential for volatility remains high due to increased import tariffs and ongoing geopolitical tensions. Food inflation has slightly decreased, driven by lower cereal and sugar prices, though inflation in edible oil prices remains high.
According to Dr. Thugge, Kenya’s overall inflation fell to 3.8 percent in May 2025 from 4.1 percent in April, staying below the midpoint of the target range of 5 percent plus or minus 2.5 percent. Non-core inflation dropped to 6.0 percent in May from 8.4 percent in April, owing to lower prices of food crops and related items, especially vegetables.
Lower energy and utilities inflation, due to decreased electricity prices, continued to moderate non-core inflation. However, core inflation rose to 2.8 percent in May from 2.5 percent in April, largely because of increased prices of processed food items. Overall inflation is expected to remain under the target range’s midpoint in the near term, supported by stable food and energy prices and a steady exchange rate.
Dr. Thugge highlighted that the Economic Survey 2025 indicates a slowdown in Kenya’s economic growth in 2024, with real GDP growth at 4.7 percent compared to 5.7 percent in 2023, primarily due to slower growth in most sectors. However, initial indicators of economic activity suggest improved performance in early 2025. The economic growth forecast for 2025 has been adjusted to 5.2 percent from 5.4 percent, influenced by higher trade tariffs. Growth is expected to be supported by resilient service sectors, agriculture, recovery in private sector credit growth, and better exports.