The Central Bank of Kenya (CBK) has announced a reduction in the key lending rate by 75 basis points, bringing it down to 12% as inflation continues to cool for the second consecutive month. This marks the second rate cut since April 2020 and represents the lowest rate since the onset of the COVID-19 pandemic.
The Monetary Policy Committee (MPC) noted that overall inflation is expected to remain below the midpoint of the target range in the near term. This expectation is supported by improved food supply from ongoing harvests, a stable exchange rate, and steady fuel prices.
Lower lending rates could alleviate borrowing costs, making it cheaper for businesses to access credit for expansion and operational improvements. Many business owners had previously expressed frustration with the high cost of credit, arguing that it had hindered growth in the private sector.
“It’s evident the private sector is strangled and are not accessing credit. Simply put, businesses are not growing, reflecting a bad business environment,” one business owner commented, advocating for even lower rates.
In September, Kenya’s inflation fell to 3.6%, down from 4.4% in August, remaining below the government’s target of 5%. Food inflation dropped to 5.1%, largely due to reduced vegetable prices, while fuel inflation decreased to 1.1%. Non-food, non-fuel inflation also eased to 3.4%.
The Kenyan shilling has demonstrated stability over the past eight months, and exports were reported to be 14.4% higher in the first eight months of 2024 compared to the same period in 2023.
Despite these positive indicators, Kenya’s gross domestic product (GDP) grew by 4.6% in the second quarter of 2024, down from 5.6% in the same period the previous year. In response, the MPC has revised the growth forecast for 2024 to 5.1%, down from 5.4%. However, strong performance in services, agriculture, and increased exports are expected to support growth, albeit with ongoing risks from potential geopolitical tensions.