The Central Bank of Kenya has implemented a significant cut in its benchmark lending rate by 75 basis points, bringing it down to 11.25% in a crucial move to stimulate economic growth. This marks the third consecutive policy meeting that resulted in a cut in interest rates, after similar adjustments in previous months, as monetary authorities respond to economic indicators.
The Monetary Policy Committee justified the large cut by pointing to controlled inflation levels, which remain within the government’s target range of 2.5 to 7.5%.
The inflation rate in November was 2.8%, which represents only a marginal increase from 2.7% in October. This stability in price levels has provided policymakers with the necessary flexibility to pursue growth-oriented measures.
Representatives of the banking sector have called for significant cuts in interest rates to influence market dynamics positively. While short-term government securities have shown a response to previous policy adjustments, the Committee noted the reluctance of commercial banks to reduce lending rates proportionately, prompting calls for greater alignment with the trend. Politics.
The central bank is maintaining its growth forecasts at 5.1 percent and 5.5 percent for the next two years, despite acknowledging an economic slowdown in early 2024.
The economic outlook comes as the nation grapples with significant debt challenges and recent political tensions that have forced the government to abandon planned tax increases worth about Sh346 billion. The policy adjustment reflects a balanced approach between supporting growth and maintaining economic stability.
