CBK Makes Key Interest Rate Decision as Inflation Rises to 6.8%

CBK Holds Interest Rate at 8.75% as Inflation Rises to 6.8%

The Central Bank of Kenya (CBK) has maintained the Central Bank Rate (CBR) at 8.75%, citing the need to keep inflation expectations anchored and support exchange rate stability.

The Monetary Policy Committee (MPC) made the decision during its meeting held on Wednesday, October 7, 2026. The decision comes after Kenya’s overall inflation rose slightly to 6.8 percent in September, up from 6.6 percent in August.

The MPC said the current monetary policy stance remains appropriate despite the increase in inflation.

The Committee said it will continue monitoring developments in the global and domestic economies, particularly changes in global oil prices and their possible impact on inflation.

“The Committee concluded that the current monetary policy stance, with the Central Bank Rate unchanged at 8.75%, remains appropriate to ensure that inflation expectations remain anchored within the target range, and the exchange rate remains stable.”

The MPC is expected to meet again in December 2026.

Inflation Rises to 6.8%

Kenya’s overall inflation remained within the target range in September but increased from 6.6% in August to 6.8%.

The CBK attributed the rise in core inflation mainly to higher prices of some processed food items, including milk, wheat products and edible oils. Core inflation increased to 4.0% in September from 3.4% in August.

However, non-core inflation declined to 14.0% from 14.7% in August, mainly due to lower vegetable prices and lower energy price inflation. The CBK said government measures, including subsidies and the temporary reduction of VAT on fuel, continue to help reduce inflationary pressure.

The bank expects inflation to remain within the target range in the near term, supported by monetary policy measures, government interventions and a stable exchange rate.

Economy Projected to Grow by 5%

The CBK has revised Kenya’s economic growth forecast for 2026 upwards to 5.0%, from the earlier projection of 4.9%.

The revised outlook reflects stronger performance in the industry and services sectors. The economy grew by 4.6% in 2025, while growth in 2027 is projected at 5.3%.

However, the CBK warned that the outlook faces risks from prolonged geopolitical tensions, trade policy uncertainty and the potential impact of the El Niño weather phenomenon.

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Businesses Remain Optimistic

The September 2026 CEOs Survey and Market Perceptions Survey showed continued optimism about business activity and economic growth over the next 12 months.

The CBK said businesses attributed the optimism to macroeconomic stability, increased government infrastructure spending, digital innovations and improved private sector credit growth following a decline in bank lending rates.

However, businesses remained concerned about high energy costs linked to the conflict in the Middle East and possible disruptions from El Niño rains.

Private Sector Credit Growth Strengthens

Commercial banks’ lending to the private sector continued to grow strongly. Private sector credit growth reached 10.6% in September, up from 10.3% in August and -2.9% in January 2025.

The CBK said credit growth remained strong in sectors including trade, building and construction, agriculture, finance and insurance, and consumer durables.

Average commercial bank lending rates stood at 14.4% in September, slightly higher than 14.3% in August but significantly lower than 17.2% recorded in November 2024.

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Banking Sector Remains Stable

The CBK said Kenya’s banking sector remains stable and resilient, supported by strong liquidity and capital adequacy ratios.

The ratio of gross non-performing loans (NPLs) to gross loans fell to 13.9% in September, down from 14.8% in June and 17.6 percent in August 2025.

The decline in NPLs was recorded in sectors including financial services, agriculture, trade, and energy and water. The CBK said banks have continued to make adequate provisions for non-performing loans.

Foreign Exchange Reserves Remain Strong

Kenya’s foreign exchange reserves stood at $14.702 billion, equivalent to 5.9 months of import cover. The CBK said the reserves continue to provide adequate cover and a buffer against short-term domestic and external shocks.

The current account deficit stood at an estimated 3.1% of GDP in the 12 months to August 2026, compared with 2.1% during a similar period in 2025.

The CBK expects the deficit to reach 3.2% of GDP in 2026, mainly due to increased imports of mineral fuels following higher international oil prices and lower remittances. Despite this, the bank projects an overall balance of payments surplus of $2.426 billion in 2026.

CBK to Monitor Oil Prices

The MPC said it will continue monitoring global oil prices and their possible second-round effects on inflation. The Committee also said it remains ready to take further action if necessary in line with its mandate.

“The MPC noted that there is need to continue monitoring the evolution of global oil prices and any second-round effects on inflation, as well as other developments in the global and domestic economies, and stands ready to take further action as necessary in line with its mandate.”

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