CBK (Central Bank of Kenya), through its top think-tank, the Monetary Policy Committee(MPC), has decided to maintain a hold on the Central Bank Rate(CBR), the tool used by banks to price their loan products, at 8.75%. This decision was made during its meeting held on August 11th 2026.
This monetary policy stance, held steady for the third time in a row, is expected to provide some level of comfort to borrowers with existing bank loan facilities, charged at variable interest rates, who will maintain their repayment rates.
Analysts hold the view that by holding the Central Bank Rate at 8.75%, CBK appears to be saying that it recognises the inflation risk but does not yet believe it warrants sacrificing recovery, especially since inflation remains within the 2.5-7.5% target band.
“Banks can still benefit from stronger credit demand, while consumer businesses face margin and purchasing power pressure. Firms with pricing power, particularly in energy and infrastructure, may prove more resilient. For equities, the story shifts from falling rates to earnings growth, dividends and pricing power. The CBK may have reached the monetary-policy floor for this cycle but if fuel inflation feeds into core inflation and expectations, the next move could eventually be tightening rather than another cut,” said CFA Dedan Maina, an analyst at Ketu Capital.
During its deliberations, the CBK top policy organ noted that Kenya’s overall inflation in July remained within the target range, at 6.5% compared to 6.4% in June. Core inflation remained stable at 3.2% in July compared to 3.1% in June.
Non-core inflation decreased to 15% in July from 15.1% in June, driven by lower energy prices, which were supported by Government interventions including subsidies and the temporary reduction of Value Added Tax on fuel. However, food inflation remained elevated on account of higher prices for vegetables particularly Irish potatoes, tomatoes, kales, cabbages and onions.
CBK expectations on inflation trends
CBK expects overall inflation to remain within the target range, assuming that the Middle East crisis ends. A stable Kenya Shilling, Government interventions to ease fuel price shocks and stability in food prices, is expected to keep inflationary pressures in check.
Figures indicate that Kenya’s Economy grew at the rate of 5.3% in the first quarter of 2026 compared to 4.9% in Q1 2025.
But despite this growth pace, uncertainty looms over Kenya’s economic growth prospects in 2026 following the ongoing Middle East crisis. Also complicating matters for Kenya’s economy are the potential adverse effects of El Nino weather phenomenon expect to hit parts of the country beginning October to February next year.
According to the July 2026 Agriculture Sector Survey, undertaken by the CBK, majority of respondents expect Inflation to remain within the target range in the near-term. However, others expect upward inflationary pressures due to concerns on high energy prices arising from elevated international crude oil prices, triggered by the ongoing Middle East crisis.
Similarly, respondents in the CEOs survey are worried about elevated global uncertainties attributed to the ongoing Gulf War and high energy costs.
CBK expects to fully finance the current account deficit caused by high fuel import prices from its strong foreign exchange reserves, currently standing at US$ 2,485 million (6.3 months of import cover). These reserves provide adequate cover against short-term domestic and external shocks.
A steady reduction in the CBR has resulted in strong growth of commercial banks’ lending to the private sector and stood at 10.2% in July 2026 from -2.9% in January 2025.
MPC notes that credit to key sectors including trade, building and construction, manufacturing, agriculture and real estate remained strong, reflecting improved demand for credit, in line with the decline in lending interest rates.
Average banks’ lending rates stood at 14.3% in July 2026 down from 14.4% in June 2026 and 17.2% in November 2024.
ALSO READ: CBK Urged to Retain Benchmark Rate at 8.75% as Gulf Crisis Persists
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