The Central Bank of Kenya (CBK) has cut the key lending rate by 75 basis points to 12% as inflation cools for the second consecutive month. It is the second rate cut since April 2020 and the lowest since the onset of the COVID-19 pandemic.

“Overall inflation is expected to remain below the mid-point of the target range in the near term, supported by lower food inflation owing to improved supply from the ongoing harvests, a stable exchange rate, and stable fuel prices,”  the Monetary Policy Committee (MPC) said on Tuesday. 

Lower lending rates could reduce borrowing costs, making it cheaper for businesses to access credit for expansion and hone their operations. Business owners had previously expressed frustration at the CBK about the high cost of credit. 

“It’s evident the private sector is strangled and are not accessing credit. Simply put, businesses are not growing, reflecting a bad business environment. A drastic drop in CBR would have been impactful,” one business owner said, arguing for even lower rates. 

Kenya’s inflation fell to 3.6% in September from 4.4% in August, staying below the government’s target of 5%. Food inflation dropped to 5.1%, driven by lower vegetable prices. Fuel inflation decreased to 1.1%, and non-food, non-fuel inflation eased to 3.4%.

The Kenyan shilling has also been stable over the last eight months. 

“Exports were 14.4 percent higher in the first eight months of 2024, compared to a similar period in 2023,” the MPC said. 

Kenya’s gross domestic product (GDP) grew by 4.6% in Q2 2024, down from 5.6% in the same period in 2023, reflecting a broad slowdown across sectors. 

As a result, the committee has revised the 2024 growth forecast to 5.1% from 5.4%. However, strong services, agricultural performance, and higher exports are expected to support growth, though risks remain from potential geopolitical tensions.