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The case for further monetary easing remains limited, but the rationale for a tightening cycle has also weakened, reinforcing the likelihood of a prolonged policy hold. Writes Parminder Kaur Umesh, a Nairobi-based research analyst.
While Kenya's domestic inflation remains broadly contained and economic activity has softened, the external environment is a key source of uncertainty.
Recent global inflation risks have been largely supply-driven rather than demand-led, driven by developments in energy markets and global trade routes rather than excessive domestic demand. Geopolitical tensions and conflict in the Middle East initially raised concerns over global energy supply disruptions and imported inflation.
However, the subsequent pause in hostilities between the United States and Iran and the resulting decline in oil prices significantly reduced immediate inflation risks. As a result, the balance of inflation risks, while still tilted modestly to the upside, is no longer deteriorating at the pace that appeared likely earlier in the month.
The threshold for additional rate cuts has not necessarily declined materially, but neither has the urgency for tighter policy increased.
The shift in energy market dynamics also supports a more balanced global monetary policy outlook. Central banks in both advanced and emerging economies remain cautious, but recent developments have reduced pressure for an aggressive response to imported inflation. While policymakers continue to emphasize data dependence and inflation vigilance, easing concerns in energy markets have contributed to a more stable outlook for inflation expectations globally.