Banks urge CBK to cut base rate to spur private sector lending

The Central Bank of Kenya has been urged to cut the base rate to ease borrowing costs and revive private sector lending, which has struggled to gain momentum in recent months.

Commercial banks argue that low inflation, a stable exchange rate and strained private sector credit make a strong case for further easing of the Central Bank Rate (CBR).

Through the Kenya Bankers Association (KBA), the lenders said inflation remains low, the shilling has stabilised, and credit to the private sector is still under pressure, calling for action to stimulate lending.

"Overall inflation remains low, and inflation expectations in the short to medium term are anchored within the target range. The Kenyan shilling remains stable, supported by strong foreign exchange reserves, resilient remittances, a stable current account deficit and ensuing favourable interest rate differentials with the recent Federal Reserve rate cut. In view of these developments, we opine that there is scope to cut the Central Bank Rate (CBR) to provide impetus for a stronger private sector credit growth and anchor economic growth," KBA said in a research note.

The KBA note comes ahead of the CBK’s Monetary Policy Committee (MPC) meeting scheduled for October 7. The committee has lowered the CBR in each of its last seven sittings, most recently on August 12, when it dropped to 9.5 per cent from 9.75 per cent.

KBA hopes that a further reduction in the CBR would make loans more affordable and attract more borrowers from the private sector. Private sector credit grew by 3.3 per cent in August, marking the fastest pace in six months.

However, CBK has in recent months accused commercial banks of being slow to pass on the benefits of lower CBR to borrowers. In a recent meeting with banks, CBK Governor Kamau Thugge urged lenders to end “excuses” and reduce rates, noting that the market is moving toward a new loan pricing model expected to respond faster to CBR changes.

Banks, however, remain cautious due to rising non-performing loans (NPLs), which increased to 17.6 per cent by June 2025. Higher interest rates had previously discouraged households and businesses from taking loans, while banks were also reluctant to lend amid mounting defaults.

The standoff earlier in the year contributed to negative growth in private sector credit, which fell by 2.9 per cent in January and 1.3 per cent in February before showing signs of recovery.

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