The Central Bank of Kenya (CBK) has maintained that commercial banks do not need approval from the National Treasury before adjusting lending rates in response to monetary policy changes, a position that could revive debate over the interpretation of Section 44 of the Banking Act.
Speaking at the East Africa Banking School Conference (EABSC) 2026 on Tuesday, July 14, CBK Governor Kamau Thugge said monetary policy decisions are independent and should be implemented by lenders without first obtaining the approval of the Cabinet Secretary for the National Treasury.
Thugge said banks are expected to promptly adjust lending rates whenever the Monetary Policy Committee (MPC) changes the Central Bank Rate (CBR), whether the benchmark rate is raised or lowered.
"I just want to emphasize again that from the central bank point of view, the decisions from the courts have been that monetary policy is independent, and therefore when we change the interest rate, that should translate immediately to lending rates. We don't have to go through the minister," Thugge said.
He added: "I know when we change the policy rate up, you will react immediately. That is guaranteed. But should the time come when we lower the interest rate, we would be expecting the banks also to lower their interest rates immediately."
The remarks suggest the CBK believes commercial banks should pass changes in monetary policy directly to borrowers without first seeking Treasury approval, especially when the MPC cuts the benchmark lending rate.
However, the position is likely to reopen legal questions surrounding Section 44 of the Banking Act, which has been at the centre of court disputes over whether the Treasury must approve changes to lending rates.
The law states that no financial institution may increase its rate of banking or other charges without prior approval from the Cabinet Secretary for the National Treasury.
In a landmark 2024 ruling involving a local bank and another company, the Supreme Court found that the term "rate of banking" under Section 44 includes interest charged on loans.
The court consequently ruled that banks cannot increase lending rates without first obtaining the Treasury Cabinet Secretary's approval.
Thugge's comments come just weeks after the CBK left the Central Bank Rate unchanged at 8.75 per cent, despite calls from some lenders for an increase during the June Monetary Policy Committee meeting.
At the time, the MPC said the prevailing benchmark rate remained appropriate for maintaining price stability while balancing risks facing both the Kenyan and global economies.
The governor's latest remarks are expected to trigger renewed debate over how quickly banks should reflect changes in monetary policy in their lending rates and whether future increases or reductions will require Treasury approval following the Supreme Court's interpretation of Section 44 of the Banking Act.
