Kenya’s central bank kept its benchmark lending rate at 8.75% on 7 October, extending a pause that began earlier in 2026. The decision marked a fourth consecutive meeting without a change. Nine of 11 economists polled by Reuters had expected the hold, while two had forecast an increase to 9.0%. The Monetary Policy Committee said its stance should keep inflation expectations anchored while supporting economic activity.
Annual inflation rose to 6.8% in September from 6.6% in August, remaining within the central bank’s 2.5% to 7.5% target band. The committee said government subsidies and the temporary reduction of value-added tax on fuel should help contain price pressures. It also said El Niño conditions could disrupt economic activity, while expected above-average rains could lower food prices. The balance left policymakers weighing stronger inflation against a need to preserve the economic recovery.
INFLATION RISKS TEMPER POLICY OPTIONS
The central bank raised its forecast for economic growth in 2026 to 5.0% from 4.9%. It said activity had remained resilient, supported mainly by industry and services. The improved projection gives policymakers some room to focus on inflation, although severe weather disruption could weaken that outlook.
The bank estimated that Kenya’s current-account deficit would widen to 3.2% of gross domestic product in 2026 from 2.1% in 2025. A wider deficit may increase the importance of stable foreign-exchange inflows and disciplined monetary policy. That external position adds another consideration as the committee assesses whether its current rate remains sufficiently restrictive.
NEXT DECISION DEPENDS ON PRICE PRESSURES
The hold leaves the policy rate unchanged even as inflation moves closer to the upper end of the target band. The committee will need to assess whether energy support measures offset food-price risks and whether the growth outlook remains firm. A sustained acceleration in inflation would strengthen the case for a tighter stance, while easing price pressures would support another hold.
Attention will now turn to Kenya’s October inflation reading and the central bank’s next policy announcement. Those releases should show whether the September increase was temporary and whether El Niño is affecting economic activity. Until then, the 8.75% rate provides a stable reference point for banks, borrowers and investors.