Why Banks Want CBK to Hold Lending Rate at 9%

Ahead of Tuesday’s Monetary Policy Committee (MPC) meeting, banks have called on the Central Bank of Kenya (CBK) to maintain the benchmark lending rate at nine per cent, citing the need to allow previous rate cuts to fully filter through the financial system and to ensure a smooth transition to the risk-based loan pricing framework.

The Kenya Bankers Association (KBA) argued that holding the Central Bank Rate (CBR) steady would support the ongoing decline of interest rates while giving banks sufficient time to adjust to new loan pricing rules.

“Keeping the CBR unchanged will allow the full transmission of previous cuts and ensure a non-disruptive transition of Kenya shilling variable-rate loans to the revised risk-based pricing framework by the end of February 2026,” the KBA said in a statement.

The association highlighted that maintaining the current rate would allow banks to complete the transition of existing loan portfolios while safeguarding stability in lending markets.

In December 2025, the CBK reduced the CBR by 25 basis points to nine per cent, marking another consecutive cut. The decision followed easing inflation, improved private sector credit uptake, and a stable exchange rate. The MPC noted that the move aimed to stimulate lending and support economic growth while acknowledging that inflationary pressures had moderated.

Ahead of the upcoming meeting, the KBA Centre for Research on Financial Markets and Policy highlighted five key factors likely to influence the MPC’s decision, with inflation remaining a primary concern.

Data for January 2026 showed headline inflation at 4.4 per cent, slightly down from 4.5 per cent in December 2025, staying comfortably within the CBK’s target range of 2.5 to 7.5 per cent. However, the KBA warned that volatile food prices, prolonged dry spells, and potential shocks from global trade could push domestic inflation higher, posing challenges for price stability.

Kenya’s economy has shown resilience, growing by 4.9 per cent in Q3 2025 compared to 4.2 per cent in Q3 2024. Services remain the largest growth driver, while agriculture faces volatility due to weather and productivity challenges, and industry contributes modest but steady gains. The Purchasing Managers Index (PMI) has stayed above 50.0 for five consecutive months, signaling continued expansion in manufacturing.

The KBA also noted that domestic interest rates have continued declining but have not fully reflected previous CBR cuts. The KESONIA rate tracks the CBR within the interest rate corridor, while short- and long-term rates have fallen at varying speeds. Internationally, some central banks, including the U.S. Federal Reserve and the European Central Bank, have paused policy rate cuts, which could affect capital flows and exchange rate pressures in Kenya.

Private sector credit growth is gradually improving as banks monitor non-performing loans in key sectors. The KBA said the exchange rate remains stable, supported by a steady current account deficit, strong diaspora remittances, and healthy foreign exchange reserves.

The association stressed that maintaining the CBR at nine per cent would allow previous rate cuts to take full effect and ensure a smooth transition of Kenya shilling variable-rate loans to the risk-based pricing framework by the end of February 2026.

KBA research also noted that domestic equities have remained largely bullish, reflecting global market trends and the eased monetary stance, while global growth is projected at 3.3 per cent in 2026, amid risks from geopolitical tensions, market corrections, and trade disruptions.

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