Kenya’s Central Bank has opted to keep its benchmark interest rate unchanged, signalling confidence that a recent rise in inflation is likely to be short-lived despite mounting pressure from higher fuel costs.
The Central Bank of Kenya’s Monetary Policy Committee (MPC) on Tuesday left the Central Bank Rate at 8.75 per cent, even as inflation climbed to 6.7 per cent in May from 5.6 per cent a month earlier.
The decision comes as households and businesses grapple with rising transport and energy costs linked to instability in the Middle East, which has disrupted global oil markets and pushed up fuel prices worldwide.
In a statement released after the meeting, the committee said inflation remained within the government’s target range of 2.5 to 7.5 per cent, giving policymakers room to maintain the current stance while monitoring developments closely.
“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 per cent, remains appropriate,” the MPC said.
For borrowers, the move offers some relief. By holding rates steady, the central bank is signalling that commercial lending costs are unlikely to rise in the near term, easing pressure on households and firms already facing higher living and operating expenses.
The committee attributed much of the recent inflation increase to rising fuel prices. Disruptions to global supply routes have driven up oil costs, with the effects filtering through to transport, cooking gas and other essential goods.
In Nairobi, petrol prices rose to Sh214.25 per litre in May, while diesel reached Sh232.86 and kerosene climbed to Sh191.38 per litre despite government efforts aimed at cushioning consumers from sharp increases.
Underlying inflationary pressures also showed signs of strengthening. Core inflation, which excludes volatile food and energy prices, edged up to 3.2 per cent from 2.8 per cent in April, largely reflecting higher transport costs. Non-core inflation rose more sharply, driven by fuel, cooking gas and increases in the prices of vegetables such as tomatoes and cabbages.
Still, policymakers expressed confidence that inflation would remain within the target range if tensions in the Middle East ease in the coming months.
The conflict involving the United States, Israel and Iran has disrupted movement through the Strait of Hormuz, one of the world’s most important energy corridors. Any prolonged interruption could continue to put pressure on fuel-importing countries such as Kenya.
The MPC pointed to several factors expected to help contain inflation, including favourable weather conditions supporting food production, government tax measures, fuel stabilisation efforts and continued stability of the Kenyan shilling.
Beyond inflation, the committee also weighed concerns about economic growth.
Kenya’s economy expanded by 4.6 per cent in 2025, slightly below the 4.7 per cent recorded the previous year. Growth slowed in sectors such as agriculture and services, although construction activity remained relatively strong.
Against a backdrop of global uncertainty, the central bank revised its 2026 growth forecast downward to 4.9 per cent from an earlier estimate of 5.3 per cent.
The MPC said uncertainty linked to geopolitical tensions and global trade disruptions continued to cloud the outlook.
Even so, surveys of business leaders and market participants suggest cautious optimism. Respondents cited infrastructure investment, digital innovation, stable exchange rates and improving access to credit as reasons for confidence over the next year.
At the same time, many flagged inflation, weak consumer demand and the rising cost of doing business as key concerns.
There were signs that lower borrowing costs are beginning to support economic activity. Average commercial bank lending rates fell to 14.5 per cent in May, down from 17.2 per cent in November last year.
Private sector credit growth also accelerated, rising to 9.3 per cent in May from 7.1 per cent in April, with stronger lending reported in trade, agriculture, construction and consumer sectors.
The banking sector remained stable, according to the central bank. Non-performing loans declined to 15.3 per cent in May from 17.6 per cent in August last year, suggesting gradual improvement in asset quality.
Looking ahead, the MPC said it would continue monitoring global oil markets and stand ready to respond if inflationary pressures intensify.
The committee’s next policy meeting is scheduled for August, when officials are expected to reassess the balance between inflation risks and economic growth.
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