The Central Bank of Kenya (CBK) expects inflation to peak lower than previously projected, amid anticipation that the US-Israel war against Iran will be resolved soon.

The CBK projects inflation will peak at 6.8 percent in January 2027 before easing in subsequent months, compared with its June projection of 7.2 per cent in February 2027.

“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,” CBK Governor Kamau Thugge said on Wednesday.

Kenya’s inflation edged up to 6.5 percent in July from 6.4 percent in June, driven by higher transport costs.

The CBK expects inflation to remain within its target band of 2.5 to 7.5 percent, assuming a near-term de-escalation of the Middle East conflict, which has pushed up domestic petroleum prices.

The bank has modelled a worst-case scenario in which prolonged conflict pushes crude prices above $110 (Sh14,232) per barrel, sending inflation beyond the upper ceiling. At that price, Thugge said inflation could reach eight percent.

Conversely, inflation would cool faster if crude prices fell to $70 (Sh9,057) per barrel, while the baseline scenario assumes $90 (Sh11,644).

The CBK noted that international oil prices fell sharply after the first ceasefire deal between Iran and the US, suggesting a similar outcome if another agreement is reached.

Higher oil prices have also widened Kenya’s import bill and current account deficit, which reached three per cent of GDP in the 12 months to June 2026, from 1.9 per cent in a similar period last year. The increase was attributed to a wider trade deficit, lower remittances and reduced export receipts.

The deficit is expected to be fully financed by inflows into financial and capital accounts, including foreign direct and portfolio investments, resulting in an overall balance of payments surplus.

The CBK on Tuesday retained its Central Bank Rate at 8.75 per cent for the third consecutive Monetary Policy Committee meeting, saying the current stance remains appropriate to anchor inflation expectations and maintain exchange-rate stability.

→ kmuiruri@ke.nationmedia.com

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