Relief for Borrowers as CBK Cuts Lending Rates by 25 Basis Points

The CBK (Central Bank of Kenya) has made an official announcement regarding its monetary policy by cutting the CBR (central bank rate), by signing the new borrowing rate from 9.00% and 8.75%, respectively.

This reduction is intended to give borrowers more relief due mainly to lower inflation rates, improved lending practices and the current lack of availability of credit.

The official announcement was made after the MPC (monetary policy committee) met on February 10, 2026, and will contribute to additional monetary support for the economy as it copes with both local and worldwide economic challenges.

“The Monetary Policy Committee (MPC) decided to lower the Central Bank Rate (CBR) by 25 basis points to 8.75 percent from 9.00 percent,” CBK Governor and MPC Chairman Dr. Kamau Thugge said in the statement, adding that the decision followed a broad assessment of inflation, growth, and financial sector developments.

Global Conditions Conducive to Easing

According to the Committee, worldwide growth appears to be still quite strong, with estimated growth rates for 2025 around 3.3%, which is about the same growth rate planned for 2026 as well.

According to the MPC, this performance reflects “lower-than-expected tariff rates on imports into the United States, improved financial conditions, strong consumer spending, and a surge in investment in Artificial Intelligence-led technology.”

However, the CBK cautioned that risks persist.

“Weak global demand, elevated trade policy uncertainty, and heightened geopolitical tensions, particularly in the Middle East, and the Russia-Ukraine conflict, remain key risks to growth,” the Committee said.

On inflation, the MPC observed that global price pressures have continued to ease.

“Global inflation declined in 2025, and is projected to decline further in 2026 and 2027,” driven largely by lower energy prices and reduced global demand, even as core inflation remains “sticky” in some major economies.

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Inflation, Growth and Banking Sector Trends

At the domestic level, Kenya’s inflation continued to trend below the target midpoint.

The CBK noted that overall inflation declined to 4.4 percent in January 2026 from 4.5 percent in December, remaining below the 5±2.5 percent target range midpoint.

“Non-core inflation decreased to 10.3 percent, mainly driven by lower prices of some vegetables, particularly tomatoes and onions,” the MPC said, while core inflation edged up slightly due to higher maize flour prices.

Economic growth also remained resilient.

According to the MPC’s reporting, Real GDP growth increased by 4.9% during Q3 2025,  thanks to the recovering industrial output and the resiliency of the service sector.

Growth for 2025 is now estimated at 5.0 percent, with projections of 5.5 percent in 2026 and 5.6 percent in 2027, “supported by the resilience of the services sector, continued recovery of the industrial sector, and stable growth of agriculture.”

The banking sector was described as “stable and resilient,” with declining non-performing loans.

The gross non-performing loan (NPL) ratio dropped from 17.6% to 15.5% between August 2025 and January 2026. Improvements have also been seen across real estate, manufacturing, trade and household lending sectors.

Credit Growth and Transmission of Policies

The recovery of the private sector credit growth rates has continued and now stands at 6.4% as at January 2026, compared to negative growth rates one year ago.

The average lending rate is now reduced from 17.2% in November 2024 to 14.8% because of the cumulative effect of the easing of monetary policy/ interest rates.

The MPC also highlighted structural reforms aimed at strengthening policy transmission.

“The revised banking sector Risk-Based Credit Pricing Model (RBCPM), which will be fully operational by March 2026, will improve the transmission of monetary policy decisions to commercial banks’ lending interest rates,” the Committee said.

To further enhance effectiveness, the MPC approved narrowing the interest rate corridor around the CBR from ±75 to ±50 basis points and adjusted the Discount Window rate accordingly to align with the new corridor.

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Outlook and Next Review

Having reviewed these developments, the Committee concluded, “there was scope for a further easing of the monetary policy stance,” noting that the rate cut would, “augment the previous policy actions aimed at stimulating lending by banks to the private sector and supporting economic activity.”

The CBK said it will continue to monitor both global and domestic developments and, “stands ready to take further action as necessary in line with its mandate.”

The next MPC meeting is scheduled for April 2026.

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CBK Governor Kamau Thugge. PHOTO/Business Daily.