Kenyans who have put their money into Money Market Funds (MMFs) may now face lower earnings after the Central Bank of Kenya (CBK) announced a cut in the base lending rate. This is the sixth consecutive time the CBK has lowered the rate since August 2024.
In its most recent Monetary Policy Committee (MPC) statement released on Tuesday, June 10, the CBK confirmed that the base lending rate was reduced by 25 basis points — bringing it down from 10.00 per cent to 9.75 per cent.
This decision is part of a strategy to ease the monetary policy stance and stimulate economic activity. While it encourages borrowing and boosts investments in some sectors, it also creates a ripple effect across the financial system, especially for savings instruments like MMFs.
These funds typically rely on fixed-income investments that are sensitive to interest rate changes.
MMFs invest in short-term financial assets such as treasury bills, bank fixed deposits, and commercial papers.
When CBK lowers lending rates, the returns or yields on these instruments also fall. That means the income MMFs generate from these investments reduces, leaving less to be distributed to investors.
As a result, returns to MMF investors are likely to decrease, especially for those who depend on them for passive income or to preserve capital over the short term.
Recently, MMF investors in Kenya have enjoyed average annual returns ranging from 9 per cent to 11 per cent. However, with interest rates trending downwards, these yields may soon decline, affecting the monthly returns investors are used to.
Fund managers running MMFs will now be required to make strategic shifts to maintain returns. They might invest in longer-term financial instruments to try and lock in better rates, but they are still limited by strict regulations that require MMFs to remain highly liquid and low risk.
The flexibility fund managers have is therefore limited, and this makes it harder to chase better yields without increasing risk.
Still, many Kenyans continue to favour MMFs due to their relatively safe nature, daily compounding interest, and quick access to funds. Even in a low interest rate environment, MMFs remain an attractive option for cautious savers.
However, with lower yields expected, investors may need to adjust their expectations. Those seeking higher returns might also start exploring other investment opportunities to diversify their portfolios.
Interestingly, some financial experts believe that lower interest rates could attract even more investors to MMFs.
As banks reduce the rates they offer on savings, MMFs may start to look more appealing. This shift could lead to increased inflows into MMFs, giving them more capital to work with and possibly helping to cushion the decline in returns.
The CBK’s move to lower the lending rate is largely motivated by positive signals in the market, such as reduced inflation. A stable economic environment usually encourages investment, and MMFs may benefit from growing investor confidence.
To adapt to the new rate environment, MMF fund managers are expected to seek investments in slightly longer-term assets, as these may offer better returns. If managed well, this shift could help MMFs perform better than expected despite the overall rate cuts.
In summary, while the lower base rate is good news for people looking to borrow money, it’s a sign of tighter times ahead for MMF investors. Experts advise staying updated on market trends and reviewing your investment plan often to make better financial decisions during such changes.
Meanwhile, CBK Governor Kamau Thugge explained that the reason for cutting the rate is to encourage banks to lend more to the private sector, which in turn would support overall economic growth. He also emphasized that the banking sector remains healthy, with strong liquidity levels and good capital buffers.
However, the percentage of loans not being paid back — known as non-performing loans (NPLs) — rose slightly from 17.2 per cent in February to 17.6 per cent in April 2025.
According to the Capital Markets Authority (CMA), five major firms — Sanlam, CIC, Standard Investment Trust, NCBA, and Britam — together manage 64 per cent of the Collective Investment Schemes (CIS) market in Kenya.
Combined, they handle assets worth Kshs. 318.9 billion, and each manages over Kshs. 30 billion in assets under management (AUM).
Among MMFs, the fastest-growing fund was the Ziidi Money Market Fund, which recorded a remarkable 331 per cent increase in assets — rising from Ksh1.7 billion at the end of 2024 to Ksh7.4 billion by March 2025.
Other funds showing strong performance included Faida Unit Trust (which grew by 193 per cent), Arvocap Funds (170 per cent), and Mayfair Unit Trust (160 per cent).
Although the CBK rate cut poses challenges for MMFs, especially in terms of returns, the sector continues to show resilience and growth. With strategic management and investor adaptability, MMFs are expected to remain a strong option for many Kenyans looking for steady, low-risk investments.
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