The Central Bank of Kenya (CBK) has maintained its benchmark lending rate at 8.75 percent for the fourth consecutive policy meeting, citing contained inflation within the target range despite global economic shocks. This decision aligns with the bank's expectation that inflation will remain below the 7.5 percent ceiling. The CBK has also upgraded its growth outlook for 2026 to five percent from 4.9 percent, reflecting economic resilience in the industry and services sectors.
The CBK's decision to hold rates is attributed to its assessment that inflation will remain under control, even as consumer prices experience a slight increase on a month-over-month basis. In September, overall inflation rose to 6.8 percent from 6.6 percent in August. Core inflation, which excludes food and fuel, increased to four percent in September from 3.4 percent in August due to higher prices for processed foods.
Private sector credit growth has accelerated to 10.6 percent in September from 10.3 percent in August, indicating the continued transmission of previous rate cuts. Additionally, bank non-performing loans have declined, with the ratio falling to 13.9 percent in September from 14.8 percent in June. The CBK's market perception survey in September revealed underlying inflationary pressures from higher fuel prices but projected a moderation in food costs due to ample rainfall.
The CBK's retention of the policy rate aligns with a cautious stance adopted by global central banks as they assess the impact of the Middle East conflict on inflation and growth. The bank's survey respondents expect inflation to remain within the target range in the near term, driven by exchange rate stability and anticipated declines in food prices due to predicted above-average rainfall.
The World Bank has also upgraded its growth outlook for Kenya, echoing the CBK's assessment of economic resilience. The CBK's decision to maintain the benchmark lending rate is expected to influence borrowing costs, with banks anticipating a fall in lending rates. The bank's actions aim to support economic growth while keeping inflation within the target range.
The CBK's policy actions are complemented by government interventions and a stable exchange rate, which are expected to support the inflation outlook. The bank's projections indicate that overall inflation will remain within the target range in the near term. The survey also revealed that respondents expect a decline in food prices due to predicted above-average rainfall between October and December 2026.
The CBK's cautious stance reflects its commitment to maintaining economic stability amid global uncertainties. The bank's decision to hold rates steady is aimed at supporting sustainable economic growth and maintaining low inflation. The next policy meeting will likely provide further insights into the CBK's assessment of the economic outlook and potential adjustments to its policy stance.
Key points
- The Central Bank of Kenya maintained its benchmark lending rate at 8.75 percent for the fourth consecutive policy meeting.
- The bank expects inflation to remain below the 7.5 percent ceiling and has upgraded its growth outlook for 2026 to five percent.
- Private sector credit growth has accelerated to 10.6 percent in September, reflecting the transmission of previous rate cuts.
