Stable Inflation and Lower Lending Rates Reduce Pressure for CBK Rate Change

Kenya’s monetary policymakers are facing little pressure to adjust interest rates. Inflation remains within the target range, while lending conditions and the shilling have stayed relatively stable.

Attention is now on the Central Bank of Kenya’s Monetary Policy Committee meeting scheduled for August 11. Analysts and bankers expect the Central Bank Rate (CBR) to remain at 8.75 percent.

The Kenya Bankers Association (KBA) has recommended that the benchmark rate be left unchanged. The association says earlier rate cuts should be given more time to support lending and economic activity. It believes additional easing measures are still filtering through the economy.

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Inflation rose slightly to 6.5 percent in July from 6.4 percent in June. However, it remained within the CBK’s target range of 2.5 percent to 7.5 percent. Core inflation stood at 3.2 percent. This reflected relatively weak domestic demand. At the same time, non-core inflation reached 15 percent due to higher food and fuel-related costs.

Food prices increased by 9 percent over the year. Transport costs rose by 15.6 percent, driven by higher fuel prices.

According to KBA, the main risks to inflation remain external. The association cited the conflict in the Middle East and volatility in global commodity markets.

Meanwhile, previous interest rate cuts continue to support credit growth. The average commercial bank lending rate fell to 14.5 percent in May 2026. This was down from 16.64 percent in January 2025. Private sector credit growth accelerated to 9.3 percent. This was up from 7.4 percent recorded in February.

The banking sector also reported a slight improvement in asset quality. The ratio of non-performing loans eased to 15.3 percent from 15.61 percent during the same period.
Kenya’s foreign exchange reserves reached US$15.4 billion by July 30. The reserves are equivalent to 6.4 months of import cover.

The increase was supported by tourism earnings, transport services, remittances and investment inflows.

Despite the stronger reserves, the current account deficit widened to US$3.79 billion in May. This was up from US$2.25 billion a year earlier. The increase reflects higher import costs, particularly for fuel.

Economic growth remained resilient in the first quarter of 2026. Gross Domestic Product expanded by 5.3 percent, up from 4.9 percent in the same period last year. Growth was largely supported by the industrial and services sectors.

With inflation contained, lending rates falling and economic growth holding steady, the case for maintaining the current benchmark rate appears stronger ahead of the MPC meeting.