The Central Bank’s Monetary Policy Committee on Tuesday cut the Central Bank Rate (CBR) by 50 basis points to 10 per cent.
The new rate implies that commercial banks now have to revise the lending rates further downwards to a maximum of 14 per cent in line with the Banking Amendment 2016 Act.
The Act caps bank interest rates at four per cent above the CBR. CBR has been at 10.5 per cent since July 25.
In a statement, CBK Governor Patrick Njoroge said the committee made the decision the demand pressures on inflation are moderate and expected to decline in the short-term.
Month-on-month inflation dropped fro 6.4 in July to 6.3 per cent in August, the regulator noted.
Njoroge, however, said the MPC was concerned over the persistent slowdown in private sector credit.
"The committee observed that the demand pressures on inflation are moderate and inflation is expected to decline in the short term, but the Committee remains concerned about the persistent slowdown in private sector growth," said Dr Njoroge in a statement.
The committee, he added, will continue monitoring the situation in both the domestic and international economies and would use the instruments at their disposal to maintain overall price and financial sector stability.