Kenya’s Central Bank Eases Monetary Policy to Boost Economic Growth
CBK Interest Cuts Update: The Central Bank of Kenya (CBK) has taken significant steps to ease monetary policy, aiming to stimulate economic activity while ensuring financial stability. During its meeting on February 5, 2025, the Monetary Policy Committee (MPC) announced a reduction in the Central Bank Rate (CBR) from 11.25% to 10.75% and a decrease in the Cash Reserve Ratio (CRR) from 4.25% to 3.25%. This move seeks to lower borrowing costs, boost liquidity in the banking sector, and make credit more accessible to businesses and consumers.
Stable Inflation and Exchange Rates Support Policy Shift
The Monetary Policy Committee (MPC) decided as it did because:
- Expectations are that inflation will not change much.
- Energy prices were low.
- The exchange rate did not fluctuate significantly.
The committee observed that central banks globally are lowering interest rates at different speeds. Additionally, with Kenya’s economic growth having slowed in 2024, there was room for a more accommodative policy stance to support recovery.
The Kenya Shilling remained stable against major international and regional currencies. As of February 6, it was trading at KSh 129.19 per US dollar, reflecting minimal fluctuation from KSh 129.25 recorded on January 30, 2025.
Foreign Exchange Reserves Remain Robust
Kenya’s foreign exchange reserves stood at USD 9.219 billion as of February 6, equating to 4.7 months of import cover. The amount surpasses the CBK’s statutory requirement of at least four months of import cover, ensuring stability in external trade.
Increased Liquidity in the Money Market
Liquidity in the money market improved following the CRR reduction. Commercial banks’ excess reserves rose by KSh 17.3 billion, helping bring down the average interbank rate from 11.23% on January 30 to 10.70% on February 6. Lower interbank borrowing costs should make borrowing money simpler for businesses and people.
Government Securities Market Attracts Strong Demand
The Treasury bill auction on February 6 saw overwhelming investor interest, with bids totaling KSh 71.2 billion against an advertised KSh 24.0 billion—representing a performance rate of 296.6%. However, interest rates on 91-day, 182-day, and 364-day Treasury bills declined, reflecting strong market confidence.
Equity and Bond Markets Show Positive Trends
The Nairobi Securities Exchange (NSE) recorded gains in key indices. The NASI, NSE 25, and NSE 20 indices rose by 1.2%, 0.5%, and 0.3%, respectively. Market capitalization, equity turnover, and total shares increased significantly, reflecting positive investor sentiment.
Bond turnover in the domestic secondary market increased by 12.4% in the week ending February 6. Internationally, yields on Kenya’s Eurobonds dropped by 21 basis points, while yields for Angola and Ivory Coast also declined, indicating improved investor confidence in emerging markets.
Global Economic Trends Influence Kenyan Markets
On the global front, inflation remained stable in key economies. The Euro Area inflation rate increased slightly to 2.5% in January 2025, while the UK’s Bank of England cut its key interest rate by 0.25 to 4.50%. The US Dollar weakened marginally by 0.1% during the same period.
Oil prices declined, with Murban oil dropping to USD 76.87 per barrel on February 6, compared to USD 78.54 on January 30. The fall in oil prices followed the OPEC+ group’s commitment to unwind production cuts starting in April 2025 gradually.
Key Takeaways
The CBK’s decision to lower interest rates and ease liquidity constraints should bolster economic growth by making credit more accessible. With stable inflation, foreign reserves, and a resilient financial market, Kenya is well-positioned to navigate economic challenges and sustain investor confidence. Businesses and consumers alike stand to benefit from lower borrowing costs, supporting broader economic recovery in 2025.