Monetary Policy Update – December 2025
The Central Bank of Kenya (CBK) lowered its Central Bank Rate (CBR) by 25.0bps from 9.25% to 9.00% in its last meeting for 2025, held on 9th December 2025, cutting the base lending rate for the ninth time in a row since cuts began in August 2024.
Geared towards promoting overall economic growths through private sector activity, the rate cut realigned with our expectations supported by low inflation and a stable foreign exchange rate. November inflation declined to 4.5% to average at 4.0% for the first eleven months of 2025, below the government mid-point range of 5±2.5%.
We expect the cut to continue supporting private sector credit growths as the cost of borrowing eases.
[Graph in PDF]
Rate Cuts Impacts & Expectations
The rate cuts have so far seen credit to the private sector improve progressively from a contraction of 2.9% in January 2025 to a high of 6.3% by November 2025 against a favourable CBK target of above 12.0%.
Average commercial lending rates have eased from 17.22% in Nov-2024 to a low of 15.07% by end of Sep-2025. The decline is however yet to reflect in the commercial lending rates as the CBR shrunk faster at 275.0bps in the same period, from 12.00% in Oct-2024 to 9.25% in October 2025.
Gross non-performing loans (NPLs) however stabilized high at 16.5% in both Nov-2025 and Nov-2024 but slightly edged down from a high of 17.6% recorded in Apr-2025 and Aug-2025.
Bank disbursements improved 1.9% eight months of 2025 in relation to a contraction recorded in December 2024 and January 2025. Return on bank deposits have narrowed faster from 11.48% in Jun-2024 and from 10.41% in Nov-2024 to an average of 7.63% in September 2025. Government securities Return on investments have also shrunk faster as the banking regulator CBK sought to implement the cuts on both treasury bonds and treasury bills:
Return on the 364-day paper lost 259.9bps in the last one year from 11.9673% on 9th Dec 2024 to 9.3681% as of 8th Dec 2025.
The 182-day (6-months) paper’s return was eroded faster at 274.4bps from 10.5485% to 7.8043%, similar period.
Rate on the 91-day paper lost 267.7bps from 10.4564% to earn a low of 7.7798% as of 6th December 2025.
The interbank rate has proved an improved rate cut transmission to the market after mirroring the CBR rate. On its trading day after the rate cuts, the interbank declined by 19.4bps from 9.25% to 9.05% as per the new policy on modernizing monetary policy and framework.
From the last review of 8th October 2025 to 9th December 2025’s MPC review, the interbank rate average at 9.2469% against a CBR of 9.25%.
Adoption of overnight interbank average rate (renamed to Kenya shilling overnight interbank average (KESONIA)) is expected to make the cost of credit favorable in line with the Central Bank rate cuts and consequently benefit household businesses and the economy at large.
See attached graph reflecting the impact of changes in the CBR and the interbank rate performance/movements.
