Kenyas Central ...
Kenyas Central Bank Reduces Key Interest Rate to Stimulate Economic Growth
On February 5, 2025, the Central Bank of Kenya (CBK) announced a reduction in its main interest rate by 50 basis points, bringing it down to 10.75%. This decision marks the fourth consecutive rate cut by the CBK, aiming to encourage lending and bolster economic activity. The Monetary Policy Committee (MPC) also lowered the Cash Reserve Ratio by 100 basis points to 3.25% and initiated inspections to ensure that banks pass on the benefits of lower funding costs to customers
The CBK's actions are in response to a slowdown in Kenya's economic growth, which decelerated to an estimated 4.6% in 2024 from 5.6% in 2023. The MPC noted that there is room for further monetary policy easing to support economic activity while maintaining exchange rate stability. Inflation rose to 3.3% year-on-year in January from 3.0% in December, driven by increased purchase prices for imported goods due to higher taxes. However, output prices rose more slowly, suggesting a potential easing of inflationary pressures compared to December
In addition to monetary policy adjustments, Kenya has initiated discussions with the International Monetary Fund (IMF) to establish a new lending program, as the current arrangement is set to expire in April. Finance Minister John Mbadi emphasized the necessity of continued IMF support to maintain economic stability, especially in light of escalating debt-servicing costs resulting from extensive borrowing over the past decade. The situation is further complicated by the government's recent decision to abandon proposed tax hikes following widespread protests.
These developments underscore Kenya's proactive approach to maintaining economic stability amid external challenges and its commitment to fostering growth through supportive monetary policies.
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