What happened

On Monday, a coalition of Kenya's leading commercial banks sent a formal letter to the Central Bank of Kenya (CBK) requesting that the current Central Bank Rate (CBR) be kept at 8.75 per cent. The banks argue that maintaining the rate is essential to preserve the flow of credit to the private sector, which remains the engine of job creation and economic growth. In the letter, they warned that any increase in the policy rate could raise borrowing costs for businesses, potentially leading to a slowdown in investment and hiring. The request comes as Kenya continues to grapple with inflationary pressures and a fragile post‑pandemic recovery.

Context and background

The Central Bank of Kenya has used the policy rate as its primary tool to manage inflation and influence economic activity since the adoption of the Monetary Policy Framework in 2016. Over the past two years, the CBR has been adjusted several times in response to volatile global commodity prices, supply‑chain disruptions, and domestic fiscal dynamics. The current 8.75 per cent rate was set in the last Monetary Policy Committee (MPC) meeting in July 2024 after a modest increase earlier in the year. Since then, inflation has remained above the CBK's medium‑term target range of 5‑7 per cent, prompting some analysts to anticipate a further hike.

Kenyan banks, which collectively hold the bulk of the country's loan portfolio, have felt the impact of higher rates on both demand and supply of credit. As the cost of funds rises, banks tighten lending standards, especially for small and medium enterprises (SMEs) that are more sensitive to interest‑rate changes. The banking sector has also been navigating tighter liquidity conditions stemming from the government's debt‑financing needs and a modest slowdown in foreign direct investment. In this environment, the banks' collective appeal to the CBK reflects a desire to protect the credit pipeline that fuels sectors such as manufacturing, agribusiness, and services.

The request is not unprecedented. In previous policy cycles, Kenyan banks have engaged the CBK through industry associations like the Kenya Bankers Association (KBA) to voice concerns over rate movements. The current appeal is notable for its timing, as the country approaches the end of the fiscal year and many businesses are finalising capital‑expenditure plans. Moreover, the banks cited recent surveys indicating that a sizeable share of private‑sector firms are postponing expansion projects due to uncertainty over financing costs.

Compared with what is normal

Historically, Kenya's policy rate has fluctuated between 6 per cent and 12 per cent since the early 2000s, with most adjustments occurring in response to sharp inflation spikes or external shocks. The 8.75 per cent level sits roughly in the middle of that historical band, and is comparable to the rate that prevailed during the 2019‑2020 period when the economy was growing at around 5.5 per cent annually. In contrast, during the high‑inflation episode of 2008, the CBR peaked at 12 per cent, leading to a contraction in private‑sector borrowing. The current request to hold the rate therefore seeks to avoid a repeat of that contractionary effect, aiming instead for a steady credit environment similar to the relatively stable period of 2018‑2019.

• Historical average policy rate (2000‑2023): about 9 per cent.
• Current rate (8.75 per cent) is within the long‑run median range.
• Previous sharp hikes (e.g., 2010, 2008) were followed by noticeable drops in loan growth.

Why it matters

For Kenyan SMEs, the cost of borrowing directly influences cash‑flow management, inventory procurement, and the ability to hire staff. A rise of even 0.5 percentage points can translate into higher monthly repayments, reducing the margin for operational expenses. Moreover, many SMEs rely on revolving credit facilities that are priced off the policy rate; any increase would raise the base cost of those facilities. For larger private‑sector firms, especially those engaged in export‑oriented manufacturing, higher rates can erode competitiveness by increasing the cost of working capital and capital‑intensive projects.

From a macro‑economic perspective, sustained credit growth supports GDP expansion, tax revenue generation, and employment creation. If the policy rate were to rise sharply, the banking sector could tighten loan‑to‑value ratios, impose higher collateral requirements, and reduce the overall volume of new loans. This would likely slow down the momentum that the government is trying to build through its Vision 2030 industrialisation agenda. Conversely, keeping the rate steady at 8.75 per cent can help maintain a predictable financing environment, encouraging firms to proceed with investment plans that were previously on hold.

Practical steps

• Review existing loan agreements to understand how future rate changes could affect repayment schedules.
• Consider locking in fixed‑rate financing now if you anticipate a possible rate hike later in the year.
• Strengthen cash‑flow forecasts to incorporate potential interest‑rate variations, allowing you to adjust budgets proactively.
• Engage with your bank’s relationship manager to explore alternative financing options such as trade finance or invoice discounting that may be less sensitive to policy‑rate movements.
• Stay informed about CBK’s monetary policy announcements by monitoring the weekly press releases and the MPC statements.

Financial Management & Analysis at Beavoren Ventures can help businesses model the impact of interest‑rate changes on their financial statements, optimise cash‑flow planning, and negotiate more favourable loan terms.

Book a consultation with Beavoren Ventures today and let us handle your compliance, books, and advisory in one place.

Disclaimer: This article is informational and does not constitute formal tax, audit or legal advice. For guidance specific to your circumstances, please contact Beavoren Ventures.