Kenya central bank cuts policy rate as inflation well within target

Kenya Cuts Policy Rate by 25 Basis Points Amid Stable Inflation
The Central Bank of Kenya (CBK) announced on October 7, 2025 that it has reduced its benchmark lending rate from 9.50% to 9.25%, marking the eighth consecutive rate cut.
The bank said the move is intended to bolster private‑sector lending and support economic activity, while citing that inflation remains well within the target band of 2.5%‑7.5%.
The central bank noted that consumer price inflation stood at 4.6% year‑on‑year in September, up slightly from 4.5% in August, but still comfortably inside the target range.
The Monetary Policy Committee (MPC) stressed that the economic outlook remains positive, with growth expected to be supported by resilient service sectors, agriculture, and industrial recovery. To reflect that, the bank slightly raised its growth forecast for 2026 to 5.5%, up from 5.4%, while maintaining the 2025 growth projection at 5.2%.
Reactions to the decision were generally positive among analysts, who viewed the rate cut as a signal of confidence in Kenya’s inflation control, as well as a tool to ease borrowing costs for businesses. However, some warned that lowering rates alone may not be sufficient — particularly if banks remain cautious in lending and private‑sector credit growth stays muted. The broader fiscal and debt pressures facing Kenya also mean that the monetary policy space remains somewhat constrained.
Looking ahead, the main question is whether this interest‑rate reduction will translate into stronger private‑sector activity and broader economic momentum. If banks increase credit to firms, and the sectors driving growth (such as services, agriculture, and industry) respond positively, Kenya might see a boost in growth momentum. However, if credit remains tight or external pressures rise (for example through currency risks or global shocks), the benefits of the rate cut may be limited, and monetary‑policy flexibility could be challenged.