The Central Bank of Kenya has handed a lifeline to debt-laden borrowers, slashing the benchmark lending rate to 8.75 percent in a decisive move to jumpstart the stalling economy.

Governor Kamau Thugge’s decision to cut the rate by 25 basis points signals a victory over inflation and a pivot towards growth. It offers a glimmer of hope for cheaper loans, though banks’ responsiveness remains the critical wild card. This marks the second consecutive rate cut, following a reduction to 9.00 percent in December 2025, cementing a trend of monetary easing that defies the hawkish stance of other global central banks.

Turning the Tide on Inflation

The Monetary Policy Committee (MPC) justified the cut by pointing to the stabilizing cost of living. Inflation fell to 4.4 percent in January 2026, squarely within the government's target range. With food and fuel prices moderating, the CBK has found the breathing room to prioritize economic expansion over price stability. "The anchor holds," Thugge noted in his briefing. "Now we must set sail for growth."

For the average Kenyan, the impact of this decision will be felt in the monthly struggle with loan repayments. High interest rates have strangled the private sector, with credit growth plummeting as businesses shelved expansion plans and households cut back on spending. By lowering the Central Bank Rate (CBR), the regulator is effectively ordering banks to lower the cost of money, hoping to unlock the liquidity needed to fuel a recovery in 2026.

• The Transmission Lag: While the signal is clear, the reality is often slower. Commercial banks are notorious for their quickness to raise rates and their reluctance to lower them. The CBK has warned that it will be watching closely to ensure the benefits of the cut are passed on to consumers.
• Global Divergence: Kenya’s move comes at a time when the US Federal Reserve and the ECB are pausing their own easing cycles. This divergence highlights Kenya’s unique economic context, where domestic demand needs urgent stimulation regardless of global trends.

A Signal to the Market

The reduction to 8.75 percent is more than a statistic; it is a psychological boost for a weary market. It suggests that the worst of the economic storm—triggered by currency volatility and tax hikes—may be behind us. The shilling has stabilized, reserves are healthy, and now, credit is getting cheaper.

However, the road ahead remains bumpy. The government’s appetite for domestic borrowing could still crowd out the private sector, negating the effects of the rate cut. But for today, borrowers can breathe a collective sigh of relief. The era of double-digit benchmark rates is receding, and the focus is finally shifting from survival to growth.