The Central Bank of Kenya (CBK) has kept its policy rate unchanged, a move aimed at anchoring inflation expectations and ensuring stability of the Kenya Shilling, amid the ongoing Middle East conflict.
The CBK noted that the US/Israel-Iran conflict has disrupted global supply chains, resulting in higher energy prices and increased risks to the global economic outlook.
“Global inflation is expected to increase in 2026 on account of higher energy prices and fertilizer costs attributed to supply chain disruptions from the conflict,” said the Bank in a statement.
To ensure inflation expectations remain within the target range, the Monetary Policy Committee (MPC) elected to maintain the Central Bank Rate (CBR) at 8.75%, effectively halting an easing cycle that had lasted nearly two years.
Data from the Kenya National Bureau of Statistics (KNBS) shows that Kenya’s overall inflation stood at 4.4% in March 2026, slightly up from 4.3% in February 2026 and within the CBK’s target range of 2.5% to 7.5%.
Core inflation remained static at 2.1% in February and March, underpinned by lower prices of some processed food items, specifically sugar and maize flour. Non-core inflation rose to 10.8%, up from 10.1% in February, largely driven by higher prices in vegetables, especially tomatoes and Irish potatoes. The monetary authority expects overall inflation to remain within the target range, despite anticipated upward pressure from rising energy prices.
Kenya’s economy grew by 5.0% in 2025, compared to 4.7% in 2024, buoyed by a rebound in the industrial sector, resilience of the services sector and stable agriculture sector growth. The MPC projects a 5.3% growth in GDP in 2026, highlighting the effect the Middle East conflict on the performance of key sectors of the economy.
Current Account and Reserves
The current account deficit widened to 2.4% of GDP in February 2026 from 1.3% in a similar period the previous year, primarily due to a higher trade deficit and lower secondary income transfers. Goods exports grew by 8.1%, driven by horticulture, tea, coffee, food and live animals, as well as machinery and transport equipment.
However, this was offset by a 10.4% increase in goods imports. Meanwhile, as of April 2, 2026, the CBK foreign exchange reserves stood at USD 13,354 million, equivalent to 5.68 months of import cover.
Asset Quality Pressures and Credit Growth
As of March 2026, the banking sector NPL ratio stood at 15.6%, up from 15.4% in December 2025, reflecting deteriorating asset quality. Commercial banks’ lending to the private sector improved to 8.1% from 7.4% in February 2026, while average lending rates edged down to 14.7% in March 2026 from 14.8% in the previous month.
CBK’s Decision Aligns with Bankers’ Association Call
The decision to hold the CBR aligns with the Kenya Bankers Association’s (KBA) call for the CBK to maintain the policy rate amid rising inflation risks and potential exchange rate pressures stemming from the Middle East conflict.
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