Introduction to Kenya’s Monetary Policy
The Central Bank of Kenya has been actively managing its monetary policy to promote economic growth and stability. In a recent move, the bank reduced its benchmark interest rate by 25 basis points to 9.50% in August 2025. This decision marks the seventh consecutive cut, indicating a significant shift in the bank’s approach to managing the economy.
Understanding the Interest Rate Cut
The reduction in the benchmark interest rate is expected to have a positive impact on the economy. By lowering the interest rate, the Central Bank of Kenya aims to encourage lending to the private sector, which can lead to increased economic activity and growth. This move is also intended to keep inflation expectations in check and maintain a stable exchange rate.
Inflation Trends in Kenya
Kenya’s annual inflation rate has been steadily increasing, reaching 4.1% in July 2025, up from 3.8% in June. Although the inflation rate is rising, it remains within the central bank’s target range of 2.5% to 7.5%. This suggests that the economy is still operating within a stable inflation environment, which is essential for promoting economic growth and stability.
The Central Bank’s Strategy
Governor Kamau Thugge explained that the Monetary Policy Committee (MPC) cut interest rates to continue promoting lending to the private sector and economic growth. The central bank’s strategy is focused on ensuring that inflation expectations remain anchored and the exchange rate remains steady. By achieving these objectives, the bank aims to create a favorable environment for businesses to thrive and for the economy to grow.
Cumulative Impact of Interest Rate Cuts
Since August 2024, the Central Bank of Kenya has lowered borrowing costs by a cumulative 350 basis points. This significant reduction in interest rates is expected to have a positive impact on the economy, making it easier for individuals and businesses to access credit and invest in their future. The cumulative effect of these cuts will likely be felt in the coming months and years, as the economy responds to the increased availability of credit and the reduced cost of borrowing.
Conclusion
In conclusion, the Central Bank of Kenya’s decision to reduce its benchmark interest rate by 25 basis points to 9.50% in August 2025 is a positive move for the economy. The bank’s strategy is focused on promoting lending to the private sector, keeping inflation expectations anchored, and maintaining a stable exchange rate. With the cumulative impact of the interest rate cuts since August 2024, the economy is likely to experience increased economic activity and growth in the coming months and years. As the Central Bank of Kenya continues to manage its monetary policy, it is essential to monitor the economy’s response to these changes and adjust the policy accordingly to ensure sustainable economic growth and stability.
