Kenya reduces benchmark rate as inflation falls

Kenya’s central bank has cut its benchmark lending rate for the second time in recent months, aiming to stimulate economic growth and encourage lending to the private sector. The Monetary Policy Committee (MPC) announced on Tuesday that the rate would be reduced from 12.75% to 12.00%.

The decision comes amidst a slowdown in the country’s economic growth during the second quarter of 2024. The central bank noted the “sharp deceleration in credit to the private sector” and the need to ease monetary policy to support economic recovery.

The rate cut follows a previous reduction in August and aligns with the recommendation of the Finance Minister, John Mbadi. Mbadi had urged the central bank to lower the lending rate due to declining inflation rates in recent months.

Inflation in Kenya has indeed been on a downward trend, falling to 3.6% year-on-year in September from 4.4% in August. This figure is well within the government’s target range of 2.5% to 7.5%.

The Kenya Bankers’ Association also supported the rate cut, stating that it could help boost economic growth by encouraging lending to the private sector.

Despite the reduced growth forecast for 2024, the central bank remains optimistic about the country’s economic prospects. It expects the economy to rebound in 2025, driven by strong performance in agriculture, exports, and key service sectors.

The Kenyan shilling has also shown resilience against the dollar, appreciating by more than 21% this year. The central bank attributed this to the government’s successful sale of a new Eurobond in February.

With adequate foreign exchange reserves, the central bank expressed confidence in its ability to withstand any short-term shocks in the foreign exchange market.

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