Central Bank continues easing cycle in October

October sees surprisingly large cut: At its meeting on 8 October, the Central Bank of Kenya (CBK) continued its monetary policy easing cycle, lowering the key policy rate by 75 basis points to 12.00%. The move came on the heels of a 25 basis point cut in August and surprised most market analysts.

Economy in need of help: The CBK aimed to support economic activity against a backdrop of softer price pressures. Inflation fell to an over-five-year low of 3.6% in September, moving further below the mid-point of the Bank’s 2.5–7.5% target range, where the CBK expects it to remain in the near term amid a stronger shilling, a healthy harvest curbing food domestic price growth and stable energy prices. The Bank also highlighted softer economic growth in Q2 and a sharp slowdown in private-sector credit as factors that influenced its decision to cut.

25 basis point cut expected in December: The communiqué was void of explicit forward guidance, though the Bank stated that it “stands ready to take further action as necessary in line with its mandate”. Our panelists see room for a small cut when the Bank reconvenes in December and for monetary easing to accelerate in 2025.

Panelist insight: Andrew Matheny, Mambuna Njie and Vinayak Iyer, analysts at Goldman Sachs, commented: “Looking ahead, we expect the CBK to continue lowering its policy rate. Our assessment is that risks are tilted towards further front loaded cuts amid weak economic data, FX stability supported by improving external balances and a more favorable global rates environment.”

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