KBA Advocates for Monetary Policy Easing

The Kenya Bankers Association (KBA) is advocating for a careful reduction in the Central Bank Rate (CBR) by the Central Bank of Kenya's (CBK) Monetary Policy Committee (MPC) during its meeting on Tuesday, October 7, 2025. The KBA's recommendation, outlined in its bi-monthly Research released on October 2, 2025, highlights favorable macroeconomic conditions that could support such a move.

According to the KBA Centre for Research on Financial Markets and Policy, current economic indicators, including low inflation, stable inflation expectations, and a steady exchange rate, create an opportune environment for monetary policy easing. The association emphasizes the critical need to boost credit growth to underpin economic activity.

“In view of low inflation and well anchored inflation expectations, and stability in the exchange rate, the need to stimulate credit growth to support economic activity becomes paramount. In this regard, we view that there is scope to further ease monetary policy via a cut in the Central Bank Rate; but laced with caution watching the continuing external vulnerabilities,” the KBA report states.

Context: Recent MPC Decisions and Economic Landscape

The upcoming MPC meeting follows a period where the CBK has been on an easing cycle since mid-2024, gradually reducing the benchmark rate. At its last meeting in August 2025, the MPC lowered the CBR by 25 basis points to 9.50 percent, indicating room for further monetary policy easing as inflation remained within target. Kenya's inflation rate for September 2025 stood at 4.6 percent, well within the CBK's target band, with core inflation stable at 3.8 percent.

The banking sector in Kenya demonstrated resilience in 2024, with profit before tax growing by 18.7% to KSh 260.09 billion. Despite this, monetary policy tightening in 2024, while effective in containing inflation, was accompanied by weak transmission to lending rates and subdued credit growth. The non-performing loan ratio also rose to 16.4% in December 2024. The KBA's 2025 State of the Banking Industry Report noted that Kenya's economy is projected to grow by 4.8% in 2025 and 4.9% in 2026, demonstrating resilience despite global uncertainties.

Law and Policy Framework

The Monetary Policy Committee (MPC) is mandated to formulate monetary policy aimed at achieving and maintaining price stability. Its decisions on the Central Bank Rate directly influence commercial bank lending rates, impacting the cost and availability of credit in the economy. The CBK's decisions are closely watched by investors due to Kenya's debt obligations and global financing costs.

Stakeholder Perspectives

The KBA's call for a rate cut reflects the banking sector's desire to see increased private sector credit uptake, which is crucial for economic expansion. Analysts suggest that the MPC's decision will be a key indicator of whether the CBK prioritizes economic growth or maintains a tight stance to manage inflation expectations. Economists have advised caution against easing rates too quickly, citing ongoing fiscal consolidation efforts and volatility in global energy prices.

Evidence and Data

• KBA Bi-monthly Research: Released October 2, 2025, advocating for CBR cut.
• MPC Meeting Date: October 7, 2025.
• Current CBR: 9.50 percent, set in August 2025.
• September 2025 Inflation: 4.6 percent (overall), 3.8 percent (core).
• 2024 Banking Sector Profit Before Tax: KSh 260.09 billion, an 18.7% growth.
• 2024 Non-Performing Loan Ratio: 16.4%.
• Kenya's Projected GDP Growth: 4.8% in 2025, 4.9% in 2026 (IMF 2025).

Risks and Implications

While a CBR cut could stimulate credit growth and economic activity, it carries the risk of reigniting inflationary pressures if not carefully managed. Conversely, an overly cautious approach could hinder economic recovery and job creation. External vulnerabilities remain a concern, necessitating a balanced approach to monetary policy.

Unknowns

The extent to which the MPC will consider the KBA's recommendations and the specific magnitude of any potential rate cut remain unknown. The impact of global financial conditions and domestic economic developments on the exchange rate will also be a factor in the MPC's decision-making.

Timeline

• October 2, 2025: KBA releases bi-monthly Research.
• October 7, 2025: Central Bank of Kenya Monetary Policy Committee meeting.

What to Watch

Stakeholders will closely monitor the CBK's announcement following the MPC meeting for any changes to the CBR and the accompanying statement on the economic outlook. The decision will signal the CBK's stance on balancing inflation control with economic growth objectives.

Related

The KBA Centre for Research on Financial Markets and Policy regularly publishes research notes and hosts conferences to foster dialogue on critical monetary policy issues. The CBK also publishes various surveys and reports that provide insights into market perceptions and economic conditions.