Kenya's Falling Interest Rates: The Puzzling Household Squeeze

Walk into a neighbourhood shop in Nairobi or Nakuru and you will hear the same quiet calculation: how much cash is left after food, rent, transport, school and airtime. At the macro level, the story looks encouraging — inflation has stayed within the official comfort zone, fuel prices have not jumped, and the Central Bank has continued to ease policy. Yet the everyday experience remains stubbornly tight, and that gap between "good numbers" and lived reality is where many of today's conversations sit. Even the most tech-forward Kenyan who follows money matters through a forex trading app or a mobile banking dashboard still ends up facing the same question at the till: is the shilling in the pocket stretching further this month, or less? The latest policy moves suggest relief should be building. But the channels through which that relief reaches households and small businesses are slower, and often uneven. In its latest Monetary Policy Committee decision, the Central Bank lowered the Central Bank Rate by 25 basis points to 9.00 percent from 9.25 percent, signalling continued confidence that inflation pressures are contained and that there is room to support credit and economic activity. The committee's own inflation breakdown explains the logic. Overall inflation eased slightly, while core inflation — which strips out volatile items — continued to decline, helped by lower prices of processed food items such as maize flour and sugar. At the same time, non-core inflation moved higher, pushed up mainly by vegetables including tomatoes, onions and cabbages. That split matters. It tells policymakers that broad price pressures are not runaway — but it also tells households why the market feels expensive even when the headline inflation figure looks moderate. If the items that swing your weekly shopping basket are in the non-core category, the pain can remain real. Rate cuts are not a switch. Policymakers have repeatedly pointed to transmission — how quickly policy decisions show up in real lending costs — and highlighted reforms intended to strengthen it. Changes to credit pricing models are meant to improve how policy rate movements pass through to commercial bank lending rates and bring more transparency to loan pricing. Some movement is already visible. Average commercial bank lending rates have edged lower, and private sector credit growth has shown signs of improvement, suggesting that demand and supply of credit are both picking up as borrowing costs gradually ease. But for many borrowers — especially smaller firms and households — the "headline" direction is not the same as practical access. Banks continue to price risk conservatively, and the cost of doing business remains high for micro and small enterprises. Meanwhile, a significant part of Kenyan commerce operates through informal channels that do not benefit directly from policy easing. Transport costs are one of the quickest ways global shocks reach local prices. Recent price reviews have kept pump prices unchanged, providing some stability for commuters, businesses and logistics operators. Holding fuel prices steady can prevent a new round of fare increases and cushion the cost of moving goods. Yet households rarely spend on fuel alone. Food prices, rent and school-related costs can easily outweigh any benefit from stable pump prices — and where vegetable prices rise, the relief is diluted fast. Policymakers have already pointed to vegetables as a key driver of recent pressure in household budgets. Kenya's inflation and cost-of-living story is not purely domestic. Freight, insurance and shipping times play a role in import costs, and East Africa's trade links remain exposed to global route disruptions. In recent weeks, major shipping players have begun discussing — and in limited cases testing — a cautious return to the Red Sea and Suez corridor after a prolonged period of diversions around the Cape of Good Hope. The approach has been gradual, shaped by security considerations rather than commercial urgency. For Kenya, this matters in a straightforward way: shipping routes influence the cost and timing of goods coming through the port of Mombasa, from fuel-related inputs to consumer products and industrial supplies. Even small changes in freight markets can show up downstream — sometimes slowly, sometimes suddenly — depending on inventory cycles and contracts. One reason the Central Bank has room to ease policy is its assessment that the banking system remains stable and resilient. Liquidity and capital levels are viewed as strong, and the ratio of non-performing loans has shown modest improvement. That progress, however, comes from a relatively high base. Elevated non-performing loans continue to shape lending behaviour. When credit risk remains a concern, banks protect themselves through stricter underwriting and pricing. This helps explain why households may hear about rate cuts but still struggle to secure affordable credit, particularly when incomes are irregular or seasonal. Kenya's external position forms part of the same picture. The current account deficit has widened slightly, reflecting higher imports of intermediate and capital goods, even as diaspora remittances have continued to provide support. Foreign exchange reserves remain at levels considered adequate for import cover. These buffers help steady the exchange rate — and exchange rate stability feeds back into inflation by limiting imported price shocks. When the currency is stable and fuel prices are steady, policymakers have more space to focus on domestic credit conditions and growth. The numbers suggest the macro environment is stabilising. Inflation remains within target, fuel has not delivered a fresh shock, and monetary policy is leaning toward support for economic activity. The challenge lies in the final step — translating those gains into affordable credit, steadier food prices and real breathing room for households that plan their finances week by week, not quarter by quarter.