Why CBK has cut key rate ahead of festive season

The Central Bank of Kenya (CBK) has cut its benchmark lending rate in a move aimed at stimulating credit to businesses and households ahead of the crucial Christmas spending period later this month, while betting that inflation will remain subdued.

The Monetary Policy Committee (MPC) lowered the Central Bank Rate (CBR) by 25 basis points to 9.00 per cent from 9.25 per cent at its last meeting of the year, marking a continuation of its easing cycle designed to support economic growth.

“The committee concluded that there was scope for a further easing of the monetary policy stance,” said Central Bank Governor and MPC Chairman Kamau Thugge in a statement.

“This will augment the previous policy actions aimed at stimulating lending by banks to the private sector and supporting economic activity.”

The decision aligns with the regulator’s goal of fostering credit growth during the festive quarter, a time of historically high consumer spending.

Data showed private sector credit growth improved to 6.3 per cent year-on-year in November, a significant recovery from a contraction of 2.9 per cent in January. 

Core inflation

Despite the gloomy short-term outlook, a majority of firms expect business activity to pick up in the fourth quarter, pinning their hopes on seasonal demand linked to Christmas. 

The Christmas holiday is marked by large family gatherings, travel, and gift-giving, typically driving a surge in spending on consumer goods, hospitality, and services. Average commercial lending rates have fallen to 14.9 per cent from 17.2 per cent a year ago.

The rate cut was underpinned by a benign inflation outlook. Overall inflation stood at 4.5 per cent in November, comfortably within the government’s 5±2.5 per cent target band. 

Core inflation, which strips out volatile food and fuel prices, fell to 2.3 per cent. 

“The stable macroeconomic environment with low inflation and stable exchange rate, [and] declining interest rates,” were cited as reasons for sustained business optimism in recent surveys, the MPC noted.

The economy, Thugge said, has shown resilience, with growth averaging 4.9 per cent in the first half of 2025.