Bankers Warn CBK Against Further Rate Cuts Ahead of MPC Meeting
The Kenya Bankers Association (KBA) has urged the Central Bank of Kenya (CBK) to maintain its current monetary policy stance, warning that further reductions in interest rates could come with economic risks at a time when the country is still adjusting to earlier policy changes.
The appeal came just a day before the Monetary Policy Committee (MPC) meeting held on Tuesday, February 10, where the central bank was expected to review the benchmark lending rate.
In its statement, the association explained that keeping the Central Bank Rate (CBR) at the current level of 9 per cent would allow previous rate cuts to fully take effect across the economy.
According to bankers, interest rate adjustments usually take time before they are fully felt by businesses and households, and making additional changes too quickly could interrupt the gradual decline in lending rates that borrowers are beginning to experience.
The KBA, through its Centre for Research on Financial Markets and Policy, said maintaining the current policy direction would also help ensure a smooth transition to the risk-based pricing framework.
Under this system, loan interest rates are determined based on the risk profile of individual borrowers rather than a fixed pricing model.
Bankers argue that stability during this transition period is important to avoid confusion in the market and to allow lenders to adjust their loan portfolios without disruption.
At the same time, the banking industry warned of growing inflation risks, especially those linked to food prices. The association noted that non-core inflation, largely driven by food costs, has shown signs of volatility.
A prolonged dry spell in key agricultural areas could reduce food production and push prices higher, creating pressure on household budgets and the overall cost of living.
This situation, they said, requires caution when making monetary policy decisions to avoid triggering new inflationary pressures.
Bankers further explained that while processed food prices have remained relatively stable, fluctuations in the prices of basic food items continue to influence overall inflation trends.
This widening gap between core and non-core inflation, they argued, signals the need for a balanced approach that supports economic growth while protecting price stability.
In their view, holding the rate steady would help achieve this balance by allowing credit to remain accessible without increasing inflation risks.
The call by the KBA comes two months after the MPC lowered the Central Bank Rate by 25 basis points to 9.0 per cent during its December 9, 2025 meeting.
That decision marked the ninth consecutive rate cut and was aimed at easing borrowing costs, encouraging lending, and supporting economic activity as inflation pressures eased.
Beyond domestic concerns, bankers also pointed to external risks that could affect Kenya’s economy. They warned that global developments, including trade tensions involving the United States and its trading partners, could influence tariffs and global prices, eventually affecting inflation locally.
In addition, the decision by major central banks such as those in the United States and Europe to pause rate cuts could impact global capital flows, exchange rates, and investor behaviour in emerging markets like Kenya.
Despite these concerns, bankers acknowledged that the Kenyan economy has remained relatively resilient. Economic growth strengthened to about 4.9 per cent in the third quarter of 2025 compared to 4.2 per cent during the same period the previous year, showing gradual recovery across key sectors.
This resilience, they said, supports a cautious approach that avoids sudden policy shifts while allowing the benefits of earlier interest rate cuts to continue flowing through the economy.
Overall, the Kenya Bankers Association maintains that keeping the benchmark rate unchanged would provide stability at a critical time.
According to the industry, allowing earlier policy adjustments to fully filter through the financial system would support lower lending rates, maintain credit access for businesses and households, and help manage both inflation risks and external economic uncertainties in the months ahead.
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