Who Really Sets the Price of Money? Inside Kenya’s Interest-Rate Power Struggle

By Emmanuel Korir,

When Kamau Thugge, Governor of the Central Bank of Kenya, addressed the East Africa Banking School Conference on July 14, he did more than deliver a routine policy update. He reignited a battle over who truly controls the price of money  placing millions of borrowers, thousands of loan contracts and the credibility of Kenya’s monetary-policy system at the centre of a collision between the country’s banking regulator and its highest court.

Thugge’s message was straightforward: when the Monetary Policy Committee changes the Central Bank Rate (CBR), commercial banks should immediately adjust their loan rates. There’s no need to consult the National Treasury or wait for a Cabinet Secretary’s approval. He believes that monetary policy is solely the responsibility of the CBK and banks must adhere to it directly.

However, the Supreme Court has already expressed its position not just once, but twice.

A Law Written for a Different Era, Reawakened in Court  

This dispute arises from Section 44 of the Banking Act, a regulation that has been quietly sitting on Kenya’s legal books for many years. It clearly states that no institution can raise its banking fees without first obtaining approval from the Cabinet Secretary for the National Treasury.

For a long time, banks treated this requirement as a mere formality, often passing it down informally since a 2006 legal notice allowed the Finance Minister to delegate approval powers to the CBK Governor. This arrangement worked well until a sanitary-towel manufacturer named Santowels Limited claimed it had been overcharged.

Santowels had been a client of Stanbic from 1993 to 1997. It later filed a lawsuit, arguing that the bank altered its lending rates without Treasury approval, leading to interest charges that far exceeded what was legally permissible. The case navigated through the High Court, the Court of Appeal and ultimately reached the Supreme Court, spanning over two decades of legal disputes.

In June 2024, a landmark decision was made by the highest court in the case of Stanbic Bank Kenya Limited v Santowels Limited, which clarified that interest rates on loans and banking services are strictly regulated by Section 44. The judges pointed out that banks cannot rely on fine print or unilateral discretion clauses to alter their charges to borrowers. They emphasized that obtaining ministerial approval is essential, rather than just a mere formality.

A related case involving Spire Bank reinforced this principle, and when the Kenya Bankers Association sought to challenge the constitutionality of Section 44, the High Court decisively dismissed that notion in December 2025. The court determined that this law is specifically intended to safeguard borrowers from unexpected and arbitrary increases in rates.

The financial consequences are significant. Stanbic was ordered to refund over Sh10 million to a single customer, while Spire had to completely reassess a client’s loan balance. Legal experts have warned that this ruling could lead to refund claims totaling billions of shillings throughout the banking sector, as customers who experienced price hikes without Treasury approval pursue their own compensation.

Conversely, the Central Bank of Kenya (CBK) has its own stance: monetary policy should not be delayed by political processes. Governor Thugge has a different interpretation of the Constitution, referencing Article 231, which grants CBK an independent role in managing monetary policy. From the regulator’s viewpoint, requiring Treasury approval every time the Central Bank Rate (CBR) changes would effectively allow a political office to veto interest rate adjustments. This could hinder CBK’s ability to tackle inflation, promote growth, or cool down an overheated economy.

This is precisely why banks such as Equity, KCB, NCBA, and Family Bank moved swiftly in February 2026 to reduce their lending rates to 8.75 percent right after the CBK eased its policy without waiting for any ministerial approval. They are banking on the idea that the Supreme Court’s ruling, which originated from a dispute over discretionary rate hikes from the 1990s, was not meant to apply to the clear, formula-based system that regulators have only recently put in place.

 What Happens Next

The situation is still far from settled. The Supreme Court’s ruling remains in effect until a future case either clarifies or overturns it, meaning that banks adhering to the CBK’s guidance without Treasury approval are still at risk of encountering the same legal issues that severely impacted Stanbic and Spire. However, disregarding the regulator also carries its own risks, considering the CBK’s oversight of every licensed lender in the nation.

For everyday borrowers, the stakes are quite significant: they need to determine if a loan that was repriced following a CBR cut was done legally and whether this could eventually lead to a refund. For the banking sector, it presents a governance dilemma with no clear solution in sight until either Parliament opts to amend Section 44, the Treasury and CBK reach a formal agreement, or another case prompts the Supreme Court to reassess the balance between monetary policy independence and consumer protection laws.

In the meantime, banks in Kenya are maneuvering through the loan pricing landscape under a legal cloud that could still have implications in the future.

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