The Central Bank of Kenya and the Bank of Tanzania have decided to maintain their benchmark interest rates, citing the need to balance inflation risks with economic growth. Kenya's benchmark rate remains at 8.75 percent, while Tanzania's is at 6.25 percent. Both central banks are taking a cautious approach to ensure that inflation stays within their target ranges. This decision comes as inflationary pressures rise in Kenya, with the annual inflation rate increasing to 6.8 percent in September.
Kenya's inflation rate has been rising, reaching 6.8 percent in September, which is closer to the upper end of the government's preferred 2.5 to 7.5 percent range. Despite this, the Central Bank of Kenya expects inflation to remain within the target range in the short term. The bank has attributed the mitigation of inflationary pressures to government interventions, including subsidies and the temporary reduction of VAT on fuel. These measures have helped to cushion the impact of rising prices on consumers.
The Central Bank of Kenya has also revised its forecast for Kenya's economic growth in 2026, slightly increasing it to 5.0 percent from 4.9 percent previously. However, the bank has identified the El Niño weather phenomenon as a key risk to the outlook. Additionally, the bank expects Kenya's current account deficit to widen to 3.2 percent of gross domestic product in 2026, from 2.1 percent in 2025. This could potentially impact the country's economic stability.
In Tanzania, the inflation rate stood at 4.3 percent year on year in August, remaining within the central bank's target range of 3 to 5 percent. The Bank of Tanzania has noted that economic activity in the country remains strong, with the economy growing 6 percent in the first quarter of 2026. The bank expects growth to remain above 6 percent in both the second and third quarters, indicating a positive outlook for the country's economy.
The Bank of Tanzania's decision to keep its benchmark interest rate at 6.25 percent follows a 50 basis point rate increase in July. The July increase was aimed at keeping inflation within the target range while maintaining economic growth. At the time, the central bank said inflationary pressures were expected to remain contained, supported by a strong harvest and export earnings.
The decisions by both central banks reflect a cautious approach to balancing inflation risks with the need to sustain economic activity. While Kenya is facing inflation closer to the top of its target range, Tanzania's price growth remains within its medium-term objective. Policymakers in both countries are working to ensure that economic growth is maintained while inflationary pressures are kept in check.
The move by Kenya and Tanzania contrasts with the actions of other central banks in the region. For instance, Nigeria recently cut its interest rate, while South Africa hiked its rate. The divergence in monetary policy approaches highlights the unique challenges facing each country's economy. As the global economic landscape continues to evolve, central banks in Africa will need to remain vigilant in their efforts to balance growth and inflation.
Key points
- - Kenya and Tanzania keep benchmark interest rates unchanged. - Inflationary pressures persist in Kenya, while Tanzania's inflation remains within target range. - Both central banks aim to balance inflation risks with economic growth.
