The Central Bank of Kenya (CBK) has cut its policy rate for the tenth consecutive time, in a bid to stimulate private sector lending and economic growth while ensuring inflation remains contained and the Kenya shilling remains stable against major currencies.
The Monetary Policy Committee (MPC), led by CBK Governor Dr. Kamau Thuge, elected to lower the Central Bank Rate (CBR) by 25 bps to 8.75% from 9.00%, translating to a cumulative 425 bps cut since August 2024.
According to data from the Kenya National Bureau of Statistics (KNBS), Kenya’s overall inflation stood at 4.4% in January 2026, down from 4.5% recorded in December 2025 and within the CBK’s target range of 2.5% to 7.5%.
Non-core inflation declined to 10.3% in January 2026 from 11.2% in December 2025, largely driven by reduced prices of some vegetables, particularly tomatoes and onions. Core inflation edged up to 2.2% compared to 2.0% in December 2025, mainly due to increased prices of food items, especially maize flour.
“Overall inflation is expected to remain below the midpoint of the target range in the near term, supported by stable prices of processed food items and energy, and stability in the exchange rate,” said the apex bank in a statement.
Kenya’s economy grew by 4.9% in the third quarter of 2025, underpinned by strong performance in both industrial and services sectors. The monetary authority projects economic growth of 5.5% in 2026, supported by resilient services, industrial and agricultural sectors.
Current Account and Reserves
The current account deficit widened to 2.4% of GDP in 2025 compared to 1.3% of GDP in 2024 as goods imports rose by 9.1% offsetting a 6.1% increase in exports. The MPC expects the current account deficit to remain stable at 2.2% of GDP in 2026 and 2027. Meanwhile, the CBK’s foreign exchange reserves stood at 12.46 billion, equivalent to 5.37 months of import cover, well above the statutory minimum of 4 months of import cover.
Asset Quality and Credit Growth
As of January 2026, the ratio of gross non-performing loans to gross loans stood at 15.5%, down from 16.7% in October 2025, highlighting improved asset quality in the banking industry. Lending to the private sector improved to 6.4% in January 2026, from 5.9% in December 2025, driven by declining interest rates. Average banking lending rates fell to 14.8% in January 2026, from 15.0% in October 2025 and 17.2% in November 2025.
Bank Makes New Adjustments
The CBK narrowed the interest rate corridor around the CBR to ±50 bps to improve monetary policy transmission. In addition, the Bank adjusted the discount window rate to 50 bps above the CBR from 75 bps, effective February 2026.
CBK Defies Bankers’ Call for Policy Rate Stability
The cut on the CBR by the MPC goes against calls by the Kenya Bankers Association (KBA) to maintain the benchmark rate at 9.00% to pave way for a smooth transition of the banking sector to the new revised risk-based pricing model scheduled to complete by February 28, 2026. In its research note, the bankers’ association cited a supportive macroeconomic environment that warranted policy rate stability.
