Kenya’s central bank has slashed its benchmark lending rate by 25 basis points to 9.75 per cent, citing easing inflation and signs of recovery in private sector credit and economic activity, even as global risks continue to cast a shadow over growth prospects.

The Monetary Policy Committee (MPC), which met on Tuesday, noted that “there was scope for a further easing of the monetary policy stance to 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.”

The decision follows a marked decline in Kenya’s overall inflation, which stood at 3.8 per cent in May, down from 4.1 per cent in April.

This figure, significantly below the mid-point of the 5±2.5 per cent target range, was largely driven by lower food and energy prices, particularly vegetables and electricity, according to the Central Bank of Kenya (CBK).

However, core inflation rose marginally to 2.8 per cent in May, up from 2.5 per cent in April, due to higher prices of processed food items.

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The CBK highlighted that “average lending rates in the domestic market have continued to decline,” and that “private sector credit growth has recovered modestly.”

In May, commercial bank lending to the private sector grew by 2.0 per cent, a notable improvement from 0.4 per cent in April and a contraction of 2.9 per cent in January.

This recovery was supported by falling lending rates and a stronger Kenyan shilling, which helped ease the cost of foreign currency-denominated loans.

Lending rates dropped to 15.4 per cent in May from 15.7 per cent in April, continuing a downward trend from 17.2 per cent in November 2024.

Although the country’s GDP growth slowed to 4.7 per cent in 2024 from 5.7 per cent in the previous year, the CBK noted that “leading indicators of economic activity point to improved performance in the first quarter of 2025.”

The growth projection for 2025 has, however, been slightly lowered to 5.2 per cent from 5.4 per cent, largely due to the impact of increased global trade tariffs.