Protests Impact Economic Slowdown as Central Bank Further Cuts Policy Rate (Kenya)

Monetary Policy Developments Kenya's Monetary Policy Committee (MPC) decided on August 12 to cut the policy rate by 0.25 percentage points to 9.50%. This marks the seventh consecutive easing measure since the previous reduction on August 6, 2024. The continued weakness in domestic economic activity serves as the primary background for this rate cut. Manufacturing Sector Deterioration Stanbic Bank Kenya's July Manufacturing Purchasing Managers' Index (PMI), released on August 5, registered 46.8. This figure has declined consecutively since May, consistently staying below the 50 threshold that separates expansion from contraction. According to the bank's economist, June's protest demonstrations negatively impacted business, leading to reduced private sector production and new orders. Additionally, July's gasoline price increases and tax hikes further adversely affected economic activity. Inflation Trends The Kenya National Bureau of Statistics (KNBS) announced on July 31 that the Consumer Price Index (CPI) for July 2025 rose 4.1% year-on-year. By category, food and beverages increased 6.8%, alcoholic beverages and tobacco rose 5.1%, and transport gained 4.1%. The CPI growth rate, which had fallen to 2.7% in October 2024, has accelerated since then, partly influenced by the Central Bank of Kenya's policy rate reductions. Policy Decision Rationale The MPC evaluated that while the CPI growth rate has slightly accelerated due to rising energy prices, it remains within the target range of 2.5-7.5% in the short term. Implementing continued easing policies to support private sector economic activity through further monetary accommodation.