In a bid to stimulate economic growth while preserving financial stability, the Central Bank of Kenya (CBK) has announced a reduction in the Central Bank Rate (CBR) to 12.75 per cent.

The decision, reached by the Monetary Policy Committee (MPC) at its meeting today, comes on the heels of positive economic indicators and a generally upbeat economic outlook.

The MPC’s move is underpinned by a confluence of favourable factors. Globally, economic prospects have brightened, with robust performance in key markets such as the United States, China, and India.

While geopolitical tensions and interest rate fluctuations pose potential risks, the committee observed a "moderation of global inflation, with central banks in some major economies lowering interest rates."

This, coupled with stabilised international oil prices, has created a more conducive economic environment.

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Domestically, Kenya has witnessed a decline in inflation, with the July figure dropping to 4.3 per cent from 4.6 per cent in June.

This easing is attributed to lower food and fuel costs, offering relief to consumers.

The agricultural sector, a mainstay of the economy, has shown resilience, contributing to overall GDP growth of 5.0 per cent in the first quarter of 2024.

Encouragingly, the July 2024 Agriculture Sector Survey revealed optimism among respondents about inflation staying steady or even declining in the coming months.

This sentiment is buoyed by improved food supply, stable exchange rates, and reduced fuel prices.

Furthermore, the CEOs Survey and Market Perceptions Survey expressed confidence in business activity and economic growth over the next year.

Kenya’s current account deficit has narrowed, and foreign exchange reserves remain adequate, providing a buffer against external shocks.

The banking sector has exhibited stability, with a decline in non-performing loans.

The government's fiscal consolidation efforts, aimed at reducing the fiscal deficit, are also expected to contribute to a healthier economic landscape.

In light of these positive developments, the MPC concluded that a gradual easing of monetary policy was warranted while maintaining exchange rate stability.

The decision to lower the CBR reflects this stance. However, the committee emphasised its commitment to closely monitoring economic conditions and its readiness to adjust policy as needed.