Kenya Urges Banks to Pass Rate Cuts to Productive Sectors

What changed

Kenya’s National Treasury Cabinet Secretary John Mbadi urged banks to pass recent interest-rate cuts on to businesses, farmers, manufacturers and micro, small and medium-sized enterprises. The Central Bank Rate has fallen by 4 percentage points since mid-2024, but average lending rates remain at 14.4%.

Why it matters

The gap is now a test of whether cheaper central-bank funding reaches the parts of Kenya’s economy that create goods and jobs. Mbadi said reduced government borrowing should free balance-sheet space for private-sector lending.

That pressure comes as inflation reached 7.3% in October, partly because of higher fuel costs. Kenya’s economy is projected to grow 4.8% in 2026 and 4.5% in 2027, below the 6% annual pace policymakers say is needed to generate sufficient jobs.

The constraint is not only the price of loans. Public debt has reached Ksh13.5 trillion, more than 70% of GDP, while interest payments absorb an estimated one third of government revenue. Heavy domestic borrowing can limit the room available for private investment, leaving banks caught between financing the state and financing the productive economy.

The immediate outlook is uncertain: banks may lower lending rates, expand credit to productive sectors, or do neither at the scale the government wants. With fuel costs still pushing inflation higher and energy-supply routes affected by the Middle East conflict, the difference will show up in whether Kenyan firms can keep investing as growth slows.