Kenya’s central bank has opted to hold its benchmark interest rate steady for the third consecutive meeting, keeping it at 8.75%. Policymakers announced the decision to carefully monitor the economic fallout of the ongoing US-Iran conflict, which continues to threaten global energy supplies, shipping routes, and domestic price stability.
In an emailed statement released on Tuesday, Central Bank of Kenya Governor Kamau Thugge explained that the Monetary Policy Committee (MPC) chose to maintain the status quo to safeguard financial stability.
“The monetary policy committee left the key rate at 8.75% to ensure that inflation expectations remain anchored within the target range, and the exchange rate remains stable,” Governor Kamau Thugge stated.
The decision aligned perfectly with market expectations, as all five economists surveyed by Bloomberg had correctly predicted an unchanged policy stance.
Central banks across the globe—including financial authorities in South Africa and Australia—are adopting a similarly cautious approach. The stop-start conflict between the US and Iran has caused severe volatility in global energy and fertilizer markets. Compounding these pressures, the vital Strait of Hormuz has effectively become impassable, while maritime risks continue to expand into the Red Sea, directly disrupting international supply chains.
While Kenya’s headline inflation remains contained within the central bank’s target band of 2.5% to 7.5%, policymakers warned that persistent geopolitical tensions could push prices higher. Governor Thugge noted that the near-term inflation outlook relies heavily on “a de-escalation of the conflict in the Middle East.” The MPC remains vigilant, stating it will continue monitoring global oil prices, potential second-round inflationary effects, and broader domestic and international developments, standing ready to take decisive action if necessary. Domestic factors are also compounding the inflation outlook. A failed harvest of the nation’s staple corn crop, alongside the threat of an expected super El Niño weather pattern, poses significant risks to food security and consumer prices in the East African nation.
Recent economic data underscores these emerging pressures. Consumer prices rose by an annual 6.5% last month, ticking up from 6.4% in June. This increase was primarily driven by war-driven surges in fuel costs, which quickly trickled down to food and transportation expenses. Furthermore, core inflation quickened to 3.2% from 3.1%, signaling broader second-round price pressures stemming from higher gasoline costs.
Despite external shocks and rising consumer prices, several sectors of the Kenyan economy continue to demonstrate resilience.
The Kenyan shilling has maintained a stable, tight trading range against the US dollar, heavily bolstered by foreign-exchange reserves sitting at record levels. Private sector credit expanded by 10.2% in July, driven by consistent lending to key economic drivers such as trade, building, construction, and agriculture. Financial health showed signs of improvement as the stock of bad loans slowed to 14.6% in July, down from 15.4% in April, aided by a decline in non-performing debt within the manufacturing and real estate sectors.
