Bankers, Analysts Lobby CBK to Hold Rate at 8.75% as Inflation, Oil Risks Temper Easing Case

CBK policymakers head into Tuesday’s August 11 rate meeting with little urgency to change the 8.75% policy rate, as subdued core inflation and a stable shilling offset persistent food and fuel pressures and risks from the Middle East conflict.

• Bankers' lobby group, The Kenya Bankers Association (KBA), has this time recommended that the Monetary Policy Committee hold the Central Bank Rate (CBR) at 8.75%, reversing its hawkish call for a rate increase ahead of the June meeting.
• KBA argues that keeping rates unchanged would allow previous monetary easing to continue supporting private-sector credit and economic activity without adding to inflationary pressure.
• Headline inflation edged up to 6.5% in July from 6.4% in June, but has remained within the CBK’s 2.5%-7.5% target range.

"While the increase warrants monitoring, core inflation is relatively low by historical standards and well below headline inflation, suggesting that broader demand-driven price pressures remain contained. Nevertheless, underlying inflation trends remain relatively contained, reflecting subdued domestic demand conditions and stable exchange-rate dynamics," Parminder Kaur Umesh, a Nairobi-based research analyst, wrote this week.

Underlying demand pressures remain considerably weaker, with core inflation at 3.2%, compared with non-core inflation of 15.0%. Food and non-alcoholic beverage prices rose 9.0% annually, while transport costs increased 15.6%, reflecting higher fuel prices.

The composition of inflation leaves the MPC with limited reason to tighten monetary policy while making another cut difficult to justify. KBA identifies the Middle East conflict and volatility in global commodity markets as the main upside risks, with higher oil and food prices capable of feeding through to transport and production costs.

Previous rate cuts are meanwhile transmitting more clearly into the economy with the average commercial bank lending rate falling to 14.5% in May 2026 from 16.64% in January 2025, while private-sector credit growth accelerated to 9.3% from 7.4% in February. Banking-sector asset quality also improved marginally, with the non-performing loan ratio declining to 15.3% in May from 15.61% in February.

The shilling provides another buffer. Kenya’s official foreign-exchange reserves had risen to US$ 15.4Bn by July 30, equivalent to 6.4 months of import cover, supported by tourism, transport services, remittances and investment inflows. However, the current-account deficit widened to US$ 3.79Bn in May from US$ 2.25Bn a year earlier, leaving the economy vulnerable to another surge in the fuel import bill.

Domestic growth has also remained resilient enough to give the MPC room to wait. Kenya’s economy expanded 5.3% in the first quarter of 2026, up from 4.9% a year earlier, supported by 5.4% industrial growth and a 5.5% expansion in services. The PMI recovered to 50.0 in June from 46.6 in May, signalling stabilising business conditions.