CBK Holds Interest Rate at 8.75% as Inflation Jumps and Global Oil Prices Surge

The Central Bank of Kenya (CBK) has kept its benchmark interest rate unchanged at 8.75 percent, saying the current policy stance remains necessary to control inflation and support economic stability.

The decision was made during a meeting of the Monetary Policy Committee (MPC) held on June 9, 2026.

CBK said inflation increased in recent months due to rising global oil prices linked to the ongoing conflict in the Middle East. However, the bank noted that inflation remains within the government’s target range.

Kenya’s overall inflation rose to 6.7 percent in May 2026 from 5.6 percent in April.

According to the MPC, the increase was mainly driven by higher fuel and energy costs following a rise in international oil prices. Transport costs also increased, pushing core inflation to 3.2 percent from 2.8 percent a month earlier.

Non-core inflation, which includes volatile items such as fuel and some food products, rose sharply to 16 percent from 13.4 percent in April.

The committee noted that prices of vegetables such as tomatoes and cabbage remained elevated, although processed food prices stayed relatively stable due to lower sugar and maize prices.

CBK Expects Inflation to Remain Under Control

Despite the recent increase, the central bank expects inflation to stay within the target range in the coming months.

The bank attributed this outlook to expected stability in food prices, government measures including fuel tax relief and subsidies, a stable exchange rate, and continued monetary policy actions.

“Overall inflation is expected to remain within the target range in the near term, assuming a de-escalation of the conflict in the Middle East,” the MPC said.

Economic Growth Forecast Lowered

The central bank revised Kenya’s 2026 economic growth forecast downward to 4.9 percent from an earlier projection of 5.3 percent.

CBK said the lower forecast reflects uncertainty in the global economy, particularly due to the Middle East conflict and ongoing trade policy tensions.

Kenya’s economy grew by 4.6 percent in 2025, slightly lower than the 4.7 percent recorded in 2024.

However, the bank said economic activity remained resilient during the first quarter of 2026, supported by strong performance in several sectors.

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Private Sector Lending Continues to Improve

The MPC noted a steady improvement in lending to businesses and households.

Private sector credit growth rose to 9.3 percent in May 2026 from 7.1 percent in April. Key sectors including trade, agriculture, construction and consumer durables, continued to receive more credit.

Meanwhile, average commercial lending rates declined to 14.5 percent in May from 17.2 percent in November 2024.

The committee said lower lending rates have helped boost demand for credit across the economy.

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Banking Sector Remains Stable

CBK said Kenya’s banking sector remains strong, with adequate liquidity and capital levels.

The ratio of non-performing loans fell to 15.3 percent in May from 17.6 percent in August 2025, indicating an improvement in asset quality.

Banks have continued to make sufficient provisions for bad loans, the committee added.

Foreign Reserves Remain Strong

Kenya’s foreign exchange reserves stood at USD 13.2 billion as of June 2026, equivalent to 5.6 months of import cover.

The central bank said the reserves provide a strong buffer against both domestic and external economic shocks.

MPC Ready to Act if Needed

The committee said it will continue monitoring global oil prices and any additional inflationary pressures that may arise from the Middle East conflict.

“Having considered these developments, including the potentially transitory nature of the conflict, the Committee concluded that the current monetary policy stance, with the Central Bank Rate unchanged at 8.75 percent, remains appropriate,” said MPC Chairman Dr. Kamau Thugge.

The MPC added that it stands ready to take further action if economic conditions change.

The committee is scheduled to hold its next meeting in August 2026.

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