The Central Bank of Kenya has recently reduced its key lending rate by 75 basis points to 12%, marking the second consecutive month of such a move. This rate cut, the second since April 2020, is the lowest observed since the beginning of the COVID-19 pandemic.
The Monetary Policy Committee (MPC) highlighted that overall inflation is anticipated to stay below the mid-point of the target range in the near future. Factors contributing to this include improved food supply from ongoing harvests, a steady exchange rate, and stable fuel prices.
Lower lending rates are expected to lower borrowing costs, facilitating easier access to credit for businesses seeking to expand and improve their operations. This adjustment addresses concerns raised by business owners regarding the high cost of credit, which has hindered business growth.
Inflation in Kenya dropped to 3.6% in September from 4.4% in August, remaining below the government’s 5% target. Decreases were seen in food inflation (5.1%), fuel inflation (1.1%), and non-food, non-fuel inflation (3.4%). The Kenyan shilling has also shown stability over the past eight months.
The MPC noted a 14.4% increase in exports in the first eight months of 2024 compared to the same period in 2023. Although Kenya’s GDP growth decreased to 4.6% in Q2 2024 from 5.6% in Q2 2023, various sectors are expected to support growth, leading to a revised 2024 growth forecast of 5.1%.
Despite the positive outlook, risks remain, particularly concerning potential geopolitical tensions.