By Racheal Nagawa | Senior Reporter, Business Express
The Kenya Bankers Association (KBA) has called on the Central Bank of Kenya (CBK) to keep the policy rate steady at 9.00%, ahead of the upcoming Monetary Policy Committee (MPC) meeting. The association warned that a further cut could be mistimed as lenders complete a nationwide transition to risk-based loan pricing, while inflation risks, particularly in food, remain elevated.
“Holding the CBR at 9.00% offers the least disruptive path for lenders, borrowers, and the shilling as the banking system migrates to KESONIA and CBR-linked benchmarks,” the KBA said in a research note.
A Critical MPC Meeting
Tuesday’s MPC gathering is shaping up as one of the most consequential in two years. Policymakers face a three-way choice: implement a record 10th consecutive cut, maintain the first hold since June 2024, or enact a rate hike for the first time since February 2024.
KBA highlighted that prior cuts have not fully transmitted to lending rates, even though KESONIA has tracked the CBK rate within the policy corridor. With the monetary transmission mechanism still incomplete, the association argued that a pause would allow the new risk-based pricing framework to embed fully, enhancing transparency for borrowers and improving price comparability across lenders.
Inflation and Food-Supply Pressures
Kenya’s headline inflation eased to 4.4% in January, but the KBA cautioned that non-core inflation, heavily driven by food prices, remains volatile. A prolonged dry spell across key agricultural zones threatens supply, which could push costs higher. In addition, global trade tensions and supply-chain pressures add external risks to the inflation outlook.
“Given the skew in inflation risks and the ongoing transition to risk-based lending, further easing at this stage could prove counterproductive,” KBA noted.
Economic Growth and Lending Trends
Kenya’s economy has shown resilience, expanding 4.9% in Q3 2025, up from 4.2% a year earlier. Services continue to drive activity, while agriculture fluctuates with weather, and industry provides steady but moderate support. Manufacturing sentiment remains positive, with the PMI above 50 for five consecutive months as of January.
Private-sector lending rebounded strongly in November, growing 6.3%, driven by manufacturing, construction, trade, and consumer durables. While banks remain cautious due to non-performing loans, particularly in real estate, the growth indicates that prior monetary easing is already feeding through.
External Stability and FX Resilience
Kenya’s shilling has remained stable, supported by strong remittances, recovering tourism, and resilient exports of tea, horticulture, and coffee. Usable foreign-exchange reserves stood at USD 12.33 billion as of Jan. 29, equivalent to 5.3 months of import cover, above the statutory minimum.
However, KBA warned that heavy external debt service obligations in 2026 remain a vulnerability, especially if Kenya diverges from global central banks like the Fed and ECB, which have currently paused monetary easing.
Policy Implications
By advocating a pause at 9%, the KBA signals that banks prefer stability over further monetary easing, prioritizing the smooth implementation of risk-adjusted lending, protecting borrowers from sudden interest-rate shifts, and preventing shocks to the shilling. Analysts say the MPC will likely weigh these domestic priorities against external pressures, including global rate trends, food inflation, and investor sentiment.
About the Author
Racheal Nagawa is Senior Reporter at Business Express Magazine, covering banking, finance, and public policy across East Africa. She specializes in monetary policy, fintech, and macroeconomic trends affecting the region’s financial markets.
