Central Bank decreases rates again in December

CBK extends longest policy easing cycle: At its meeting on 9 December, the Central Bank of Kenya (CBK) decided to lower its policy rate by 25 basis points to 9.00%. December’s reduction was the ninth consecutive, bringing cumulative cuts to a total of 400 basis points since August 2024. The decision had been priced in by markets.

Inflation is well under control: The cut was driven by contained inflation: Headline inflation remained below the midpoint of the CBK’s 2.5–7.5% target band from June 2024 through November 2025; similarly, core inflation fell below the target range in November 2025. Moreover, inflation expectations are anchored: The CBK expects headline inflation to remain below the 5.0% midpoint in the near term on stable energy prices, continued exchange rate stability and lower prices for processed food items. This outlook gave the Central Bank room to further reduce rates to stimulate economic activity by encouraging lending from commercial banks. The Central Bank already appears to have made progress on his front: GDP growth was solid in H1 2025 and is expected by the CBK to have improved in Q3 2025; the CBK also projects stronger GDP growth in 2026 vs 2025.

Room opens for small, final cuts in 2026: The Central Bank did not provide specific forward guidance. Virtually all of our panelists expect additional reductions in 2026; our Consensus is for around 50 basis points of cuts. The Central Bank will reconvene on 10 February 2026.

Panelist insight: Reflecting on the policy rate outlook, analysts at the EIU said: “In 2026 a further two cuts will take the rate to 8.75%, where it will stay until end-2027. The central bank will then raise the policy rate to 9% in 2028, where it will remain in 2029-30, reflecting a rise in price pressures as stronger economic growth emerges towards the end of our forecast period.”

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