The Central Bank of Kenya’s (CBK) Monetary Policy Committee (MPC) is set to convene tomorrow, October 7, 2025, to determine the Central Bank Rate (CBR). Since January 2024, the MPC has reduced the CBR by 300 basis points, from 12.50% to the current 9.50%, through seven consecutive rate cuts.
CBR Cuts Drive Yields Lower, Anchor Inflation
The impact of the rate cuts is that yields have consequently come down, with the 364-day treasury bill rate declining to below 9% from the extreme levels it were in 2024. In 2024, the yield on the 364-day treasury bill hit a high of 16.98 in March, and remained above 16% throughout the year to October, before declining to 14.16% in November 2024 and tapering to 11.83% in December 2024. The decline in the 364-day Treasury bill in November – December coincided with the 75 basis points rate cut in December 2024 when the CBK’s MPC cut the base rate from 12.00% to 11.25% in its December 2024 sitting.
In last week’s Treasury bill auction, the yields for the 91-Day, 182-Day and 364-Day Treasury bills came in at 7.9239%, 7.9849% and 9.5406%, and this is a significant reduction compared to one year ago, when they were at 15.75%, 16.62% and 16.82%, respectively. Inflation has also softened, with headline inflation declining from 6.85% in January 2024 to 4.6% as in September 2025, aligning with the CBK’s inflation target range of 5%±2.5%. With the CBR currently at 9.5%, and inflation at 4.6%, Kenya’s real interest rate now stands at 4.9%. At the 8th NCBA Economic Forum, the chairperson of the Council of Economic Advisors David Ndii noted a lower inflation anchor would consequently result in the yield curve falling to single digits, and the data a year later has shown that the yields on treasury bills have retraced to single digits from the double-digit highs recorded a year ago.
“If we are talking about an inflation anchor around 3%, then clearly that enables us to start thinking about our entire yield curve being in single digit territory, probably with 90-day T-bills around 5% and hopefully with sort of medium term bonds not much more above 10%, if at all.” – Dr. David Ndii, Chairperson of the Council of Economic Advisors
Lending Rates Defy CBR Cuts
In terms of the impact of the rate cuts on the average commercial bank lending rate, with the CBR coming down from 12.50% in January 2024 to 10.00% in April 2025, the average commercial bank lending rate moved from 15.20% to 15.65% in the period. While the CBK MPC has been consistent with rate cuts, commercial banks have not responded to the cuts in tandem. In December 2024, the Central Bank of Kenya Governor Dr. Kamau Thugge flagged this dichotomy, pointing out that commercial banks were not as quick to cut their lending rates given how fast they were in hiking their lending rates when the CBR was ticking upwards.
“[Commercial] banks have been sluggish in lowering their lending rates in line with the reduction in the Central Bank Rate (CBR). We urge banks to take necessary steps to lower their lending rates to stimulate credit to the private sector and thereby boost economic activity. When the Central Bank raised the policy rate, banks were quick to raise their lending rates. We expect the same responsiveness in reducing lending rates now that the CBR has been lowered.” – Dr. Kamau Thugge, Central Bank of Kenya Governor.
Whether the MPC will slash the key rate tomorrow to make it 8 consecutive rate cuts, hike or hold, remains to be seen, and importantly is how commercial banks in the economy react to the action by the MPC.
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