IN SHORT: Kenya’s Central Bank held its benchmark rate at 8.75% on April 8, pausing after 10 consecutive cuts since August 2024, citing the need to monitor second-round effects of oil price surges from the Iran war. Growth forecast trimmed to 5.3% from 5.5%. Current account deficit projection widened to 3.0% of GDP from 2.2%. Foreign reserves stand at $13.7 billion covering nearly 6 months of imports.
The Central Bank of Kenya paused its two-year rate-cutting cycle on April 8, holding the benchmark rate at 8.75% after 10 consecutive reductions, as Governor Kamau Thugge cited the need to monitor second-round inflation effects from the Iran war-driven oil price surge and trimmed the 2026 growth forecast from 5.5% to 5.3%, making Kenya the latest African central bank to anchor policy amid external energy shocks rather than continue easing.
- Rate held at 8.75%. The 10th consecutive meeting saw a cut; the 11th was a hold. The pause ends an easing cycle that ran from August 2024 through February 2026, delivering 275 basis points of cumulative cuts.
- GDP growth forecast for 2026 trimmed from 5.5% to 5.3%, with the Middle East conflict identified as the primary downside risk. Kenya recorded 5.0% growth in 2025, up from 4.7% in 2024.
- Current account deficit projection widened from 2.2% to 3.0% of GDP for 2026, reflecting the higher cost of fuel imports from rerouted supply chains and potential softness in export earnings.
- Headline inflation: 4.4% in March 2026, up marginally from 4.3% in February. Core inflation stable at 2.1%. Non-core inflation, driven by fresh produce including tomatoes and Irish potatoes, jumped to 10.8% from 10.1%, partly a legacy of the Burkina Faso tomato supply disruption.
- Non-performing loan ratio: rose marginally to 15.6% in March 2026 from 15.4% in December 2025, below the August 2025 peak of 17.6%, indicating continued improvement but ongoing banking sector stress.
- Private sector credit growth recovered to 8.1% in March 2026 from 7.4% in February and a contraction of 2.9% in January 2025, signalling improving credit demand after two years of rate cuts feeding through.
- Average commercial bank lending rate: 14.7% in March 2026, down from 17.2% in November 2024. That is a 250 basis point reduction in effective lending rates that has only partially followed the central bank’s policy cuts.
- Foreign exchange reserves: $13.7 billion, covering nearly six months of import cover, well above the four-month adequacy threshold and providing a meaningful buffer against shilling pressure.
Kenya’s monetary policy pause is entirely rational given the information available at the April 8 meeting. Oil prices had been trading above $110 per barrel for weeks before the Trump-Iran ceasefire agreement on the same day caused a sharp sell-off. The CBK’s decision to hold reflects genuine uncertainty about whether the ceasefire would hold, how quickly oil price relief would feed through to Kenyan pump prices, and what second-round effects on transport and food costs might materialise between April and June.
The Bigger Picture: Kenya’s rate-cutting cycle since August 2024 has been among the most aggressive in Africa, delivering 275 basis points of cuts in 18 months. The transmission to real borrowing costs has been partial: commercial bank lending rates have fallen from 17.2% to 14.7%, but still sit far above the policy rate at 8.75%, reflecting the structural premium Kenyan banks charge for credit risk in an economy with 15.6% non-performing loans. The easing cycle’s primary achievement has been the partial recovery of private sector credit growth from contraction to 8.1%. Whether the pause is temporary or the beginning of a new hold phase depends almost entirely on what happens to oil prices over the next quarter. If the Hormuz ceasefire holds and Brent retreats toward $85, another cut in June becomes plausible. If it breaks down, the CBK will hold until the picture clears.
Source: The Star / Reuters / MarketScreener
