Commercial lenders are pressing the Central Bank of Kenya (CBK) to keep its benchmark rate unchanged, arguing that another move could unsettle the sector just as it transitions to a new risk-based loan pricing model.
Through the Kenya Bankers Association, the industry has called for a pause in adjustments to the Central Bank (CBK) Rate, saying stability would allow earlier cuts to filter fully through the market and ensure a smooth shift of existing Kenya shilling variable-rate loans to the revised framework. The migration of legacy facilities issued before December 1, 2025 is set to conclude by the end of February 2026, while newer loans are already priced under the updated system.
The CBK has reduced the benchmark rate at nine straight policy meetings since August 2024, trimming it from 13 per cent to 9 per cent in a bid to revive lending after taming inflation and exchange rate turbulence. Because most banks have anchored their loan pricing to the CBR, any further change would ripple directly through borrowing costs.
Under the new framework, lenders select a benchmark rate, largely the CBR, though some have opted for the Kenya Shilling Overnight Interbank Average, known as Kesonia, or a blend of both. To this base rate they add a risk premium and associated fees to determine the final cost of credit. The structure closely tracks the CBK’s policy stance, with Kesonia kept within a corridor of 0.75 percentage points above or below the CBR.
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While banks advocate caution, several independent economists argue there is still room for modest easing. With inflation easing to 4.4 per cent in January, below the five per cent midpoint target, and the shilling holding steady near Sh129 to the dollar, analysts suggest a further cut of between 25 and 50 basis points could bolster economic activity.
Private sector credit growth has begun to pick up, rising to 6.3 per cent in November, its strongest pace in 19 months. Even so, lending remains below historical double-digit norms, constrained by elevated non-performing loans. The ratio of gross NPLs to total loans stood at 16.5 per cent in November 2025, slightly improved from previous months but still high enough to temper banks’ appetite for risk.
At stake is the delicate balance between sustaining credit recovery and preserving financial stability. Move too fast, and the repricing exercise could turn disorderly. Move too slowly, and the broader economy may be left idling just as it begins to regain traction.
