CBK Cuts Central Bank Rate to 8.75 Percent to Spur Growth
The Central Bank of Kenya (CBK) has lowered the Central Bank Rate (CBR) by 25 basis points to 8.75 percent, a move aimed at stimulating private-sector lending and supporting broader economic expansion. The decision signals continued monetary easing as inflation remains within target and economic activity shows resilience.
The resolution was reached during the Monetary Policy Committee (MPC) meeting held on February 10, 2026. According to the committee, the reduction from the previous 9.00 percent rate is expected to lower borrowing costs and encourage banks to extend more credit to businesses and households.
“The Monetary Policy Committee decided to lower the Central Bank Rate by 25 basis points to 8.75 percent from 9.00 percent during its meeting held on February 10, 2026,” the CBK chair announced in a statement.
Inflation Remains Well Anchored
Data reviewed by the MPC shows that Kenya’s inflation environment remains favourable. Overall inflation eased to 4.4 percent in January 2026, down from 4.5 percent in December 2025, staying below the midpoint of the government’s target range of 5 ± 2.5 percent.
Non-core inflation, largely influenced by food prices, declined to 10.3 percent, reflecting improved supply conditions and easing global commodity pressures. Core inflation, which excludes volatile food and fuel components, edged slightly higher to 2.2 percent due to increases in some processed food items and services.
The committee noted that inflation is expected to remain stable in the near term, supported by steady energy prices, exchange-rate stability and favourable weather conditions that should boost agricultural output.
Strong Economic Performance
Kenya’s economy has continued to demonstrate resilience despite global uncertainties. Real GDP growth for 2025 is estimated at 5.0 percent, driven mainly by robust performance in the industrial and services sectors.
The MPC projects stronger momentum ahead, with growth expected to reach 5.5 percent in 2026 and 5.6 percent in 2027. These projections are anchored on improved agricultural production, increased private-sector investment and recovery in manufacturing and tourism.
The services sector—particularly financial services, transport, ICT and trade—has remained a key driver of expansion, while construction activity has benefited from ongoing infrastructure projects and private real-estate development.
Private Sector Credit Picks Up
One of the main motivations behind the CBK Central Bank Rate cut is to accelerate credit to the private sector. Lending growth improved to 6.4 percent in January 2026, reflecting rising demand in building and construction, trade, manufacturing and consumer durables.
Average commercial bank lending rates declined to 14.8 percent, from 15.0 percent in October 2025. The MPC expects this downward trend to gather pace following the latest policy adjustment.
To further strengthen monetary policy transmission, the committee approved the narrowing of the interest rate corridor from ±75 basis points to ±50 basis points around the CBR. The Discount Window rate was also aligned to 50 basis points above the CBR, a move designed to make interbank pricing more predictable.
Risk-Based Credit Pricing Model
Another key reform highlighted by the CBK is the full implementation of the Risk-Based Credit Pricing Model (RBCPM) scheduled for March 2026. The framework will require banks to price loans based on a borrower’s risk profile rather than applying uniform rates.
The regulator believes the model will enhance transparency, promote competition among lenders and make credit more accessible to small and medium-sized enterprises (SMEs), which are critical to job creation.
Tenth Consecutive Easing Move
The latest reduction marks the tenth consecutive cut in the benchmark rate since 2024, underlining the central bank’s commitment to supporting economic recovery.
In December 2025, the CBK lowered the CBR from 9.25 percent to 9.00 percent, a decision intended to encourage banks to lend more aggressively and reduce the cost of capital for businesses.
At the time, the Kenya Bankers Association (KBA) had urged caution, arguing that maintaining policy stability would protect savings and financial sector margins. However, the MPC maintained that easing was necessary to unlock credit growth and sustain momentum.
Exchange Rate and External Sector
The committee observed that the Kenya shilling has remained relatively stable, supported by strong diaspora remittances, tourism receipts and improved export performance. Adequate foreign-exchange reserves have also cushioned the economy from global shocks.
Global inflationary pressures have moderated, and oil prices have stabilised, reducing imported inflation risks. Nevertheless, the MPC pledged to continue monitoring geopolitical developments and international financial markets.
Outlook and Next Steps
The CBK reiterated its commitment to maintaining a balanced policy stance that supports growth while safeguarding price stability. Authorities will continue to assess domestic and global trends, including rainfall performance, fiscal developments and credit conditions.
“The MPC will closely monitor emerging risks to ensure that inflation and exchange-rate stability remain on track while supporting economic activity,” the statement said.
The next Monetary Policy Committee meeting is scheduled for April 2026, where further policy direction will be provided based on new economic data.
Economists believe the latest move will provide relief to borrowers and could translate into lower interest rates on personal loans, mortgages and business credit in the coming months.