The Central Bank of Kenya reduced its central bank rate by 25 basis points to 9.75% at its June 2025 meeting, bringing the policy rate below double digits for the first time since May 2023. The decision reflects the Monetary Policy Committee's assessment that the improved inflation and growth outlook provides space to continue the easing cycle that has been under way in Kenya, with the lower rate intended to support credit conditions and domestic economic activity.
The return to single-digit territory is a notable milestone for Kenyan monetary policy, as the central bank rate had climbed sharply in the preceding years in response to inflation pressures and currency volatility. The steady reduction from those elevated levels reflects both the global disinflationary trend that has allowed central banks across emerging markets to begin easing and Kenya-specific improvements in economic fundamentals.
GROWTH FORECAST REVISED UPWARD TO 5.2%
Alongside the rate decision, the Central Bank of Kenya revised its GDP growth forecast for 2025 to 5.2%, a signal of greater optimism about the trajectory of the Kenyan economy. A 5.2% growth rate would represent a solid performance for an East African economy navigating a challenging global environment characterised by elevated borrowing costs in developed markets, commodity price volatility, and subdued demand from major trading partners.
The upward revision to the growth forecast provides additional justification for the rate cut, as an improving growth outlook reduces the risk that looser monetary conditions might be accompanied by economic overheating or a re-acceleration of inflation. When growth is on a positive trajectory and inflation is within acceptable bounds, central banks are better positioned to ease without triggering secondary price effects.
Kenya's economy has been supported by its services sector, particularly the technology and financial services industries centred in Nairobi, as well as by agricultural output and the performance of its trade-dependent sectors. The tourism industry, which represents a meaningful contributor to Kenyan GDP, has also been recovering in the post-pandemic period, adding to the positive growth dynamics that informed the revised forecast.
EASING CYCLE REFLECTS IMPROVED MACRO CONDITIONS
The June cut is part of a broader easing cycle that the Central Bank of Kenya has been conducting as inflationary pressures eased and the external environment became more supportive. Like many African central banks, the CBK had tightened policy aggressively in response to the inflation shock of 2022, and the subsequent disinflation has allowed it to reverse a portion of that tightening as conditions warranted.
Lower borrowing costs at the central bank rate level are intended to transmit through the Kenyan financial system, reducing the cost of credit for businesses and households. Commercial banks in Kenya use the central bank rate as one of the reference points for their lending decisions, and a sustained reduction in the policy rate should gradually lower the cost of loans, mortgages, and business credit across the economy.
The Monetary Policy Committee will continue to assess incoming data on inflation, the current account, and the performance of the Kenyan shilling as it evaluates the pace of further easing. With the rate now at 9.75%, the CBK retains considerable room to reduce borrowing costs further if the economic outlook continues to improve, while also preserving the option of pausing if external or domestic conditions change in ways that warrant a more cautious stance.