In a strategy move that caught markets off guard, the Central Bank of Kenya has delivered its fifth straight interest rate cut, slashing the benchmark rate by 75 basis points to 10 percent—a deeper reduction than analysts anticipated. 

The decision comes amid heightened global trade tensions sparked by U.S. President Donald Trump’s latest round of reciprocal tariffs, yet policymakers signaled confidence in Kenya’s resilient inflation and currency stability.

Governor Kamau Thugge, in a statement following Tuesday’s Monetary Policy Committee (MPC) meeting, cited subdued inflation and a steady shilling as key factors enabling further monetary easing. 

“Inflation is expected to remain well-anchored below our target mid-point, supported by stable food and energy prices, as well as exchange rate resilience,” Dr. Thugge noted.

He added, "The MPC will closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to take further action as necessary in line with its mandate."

Kenya's rate of annual inflation edged up slightly to 3.6 percent in March but remains within the central bank’s 2.5 percent-7.5 percent target band. Core inflation, which strips out volatile food and fuel costs, also ticked higher to 2.2 percent, though still far from alarming levels.

The Kenyan shilling, which defied global currency turmoil in 2024 as the world’s best-performing currency, has held steady around 129 per dollar this year. This stability, combined with sluggish domestic demand, has kept price pressures in check—giving the MPC room to prioritize growth.

With Kenya's private sector lending still sluggish despite earlier rate cuts, the MPC indicated that it seeks to jolt economic activity by making borrowing cheaper. 

“This reduction is intended to stimulate bank lending while maintaining exchange rate stability,” Dr. Thugge explained.

In a technical tweak, the MPC also narrowed the policy rate corridor to 75 basis points from 150 to reduce interbank rate volatility—a move that could improve liquidity management.

While Kenya’s domestic outlook appears favourable, external risks loom—particularly Trump’s escalating trade wars, which saw Kenya slapped with 10 percent duty on exports to the US market.

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