Central Bank of Kenya Lowers Interest Rate to 12% 

The Central Bank of Kenya (CBK) has reduced its interest rate by 0.75%, bringing it down to 12%. This was an expected move with the purpose of boosting the economy and making it cheaper for people and businesses to borrow money.

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Why did Kenya reduce interest 

The Monetary Policy Committee (MPC) made this decision due to two key factors: 

• A reduction in inflation and 
• A slowdown in private sector growth during the second quarter of 2024.

Now, Kenya’s inflation rate has steadily decreased, reaching 3.6%, which is within the CBK’s target range of 2.5% to 7.5% but then, credit growth in the private sector has slowed down, with a significant drop from 3.7% in June to 1.3% in August.

In a statement released, the MPC said, “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,”

In the past, the Central Bank of Kenya had raised interest rates several times to fight high inflation and stop the Kenyan shilling from losing more value. In December 2023, they raised it from 10.5% to 12.5%, and then in February 2024, they raised it again to 13%. 

Now that inflation is under control, the CBK feels comfortable lowering the rates, following the trend seen in countries like South Africa, Ghana, and Uganda.

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The Kenyan shilling has gained more value against the US Dollars since the beginning of the year, with a 17.4% gain in value. 

Some reasons for the growth can be attributed to; 

• The impact of previous monetary tightening (higher interest rates to fight inflation).
• The success of a Eurobond buyback (a way for the government to manage its debt).
• Settling some of Kenya’s debt in June.
• Other foreign investments that are coming into the country.

The MPC is expected to hold one more meeting in December 2024, where further decisions on interest rates may be made.

What You Should Know 

Kenya’s move mirrors the actions of other central banks globally, like the US Federal Reserve and the European Central Bank, which have also cut interest rates in response to slowing economies and to reduce the inflation pressures.