Kenyans are poised to benefit from reduced borrowing costs as the Central Bank of Kenya (CBK) implements further lending rate cuts starting next month. Experts anticipate that the CBK's Monetary Policy Committee (MPC) will lower the base lending rate from the current 10.00 percent, potentially reaching as low as 8.5 percent. This move aims to stimulate economic activity by encouraging lending to the private sector while maintaining exchange rate stability.

According to analysts at Goldman Sachs Group Inc., Kenya's improved terms of trade provide a foundation for easing the rates. "We continue to expect the Central Bank of Kenya to cut its policy rate at consecutive meetings to an 8.5 percent terminal rate," wrote Andrew Matheny and Mambuna Njie in a note to clients. The CBK recently reduced the base lending rate by 75 basis points, bringing it down to 10.00 percent from 10.75 percent.

CBK Governor Kamau Thugge stated that lowering interest rates is intended to stimulate bank lending to the private sector, thereby supporting overall economic activity. The decision also considers the moderation in global headline inflation, though the potential impact of higher tariffs on imports remains a factor. This adjustment marks the second instance of rate cuts following the imposition of a 10 percent tariff by the U.S. on Kenya and significant levies on China, one of Kenya's major trading partners.

While the CBK is keen on fostering lending, it has also addressed concerns about returning to interest rate caps. These concerns arose after the publication of a Consultative Paper on the Review of the Risk-Based Credit Pricing Model. The CBK clarified that the paper, currently under review, was misinterpreted and that it remains committed to a market-driven approach to interest rates.

The anticipated lending rate cuts are expected to provide relief to businesses and individuals seeking loans for various purposes, including expansion, home purchases, and investments. The move aligns with strategies adopted by other African economies to counter the impact of global economic pressures, such as tariffs and inflation, ultimately aiming to bolster domestic economic resilience.