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Fuel prices and El Niño rains are the main threats to Kenya’s economic outlook into 2027, KCB Group Treasurer Antony Mulisa told corporate clients at the bank’s Powertalk Roundtable in Nairobi, Khusoko reported on October 31, 2026. The outlook comes a day after official data showed inflation rising to 7.3% in October.
Growth before the fuel shock
- Real GDP grew 5.3% in the first quarter of 2026, up from 4.9% a year earlier, led by industry and construction.
- Financial and insurance services grew 6.3% on higher lending.
- Agriculture grew 4.9% and made up 19% of GDP.
Mulisa said higher fuel prices after the February 28 strikes on Iran and weak sentiment will have dented growth in the second and third quarters. He cited IMF projections of 4.5% growth for Kenya in 2026 and 4.7% in 2027.
Two oil scenarios
| Scenario | Oil price | Effect |
|---|---|---|
| Strait of Hormuz reopens by Q1 2027 | US$70–80 a barrel | Inflation pressure eases |
| Conflict intensifies again | Above US$90 a barrel | More monetary tightening; regional inflation could breach target limits |
The IMF’s base case assumes the strait reopens in March 2027, with oil averaging US$96 a barrel in 2026 and US$87 in 2027.
El Niño risk
The Kenya Meteorological Department forecasts above-average short rains over about 80% of the country from October to December. KCB warned that El Niño can disrupt farming, transport and essential services. In the 1997–98 episode, Kenya’s growth fell to 1.8% in 1998 from 4.6% in 1996. Higher commodity and transport costs could push inflation into double digits and test food security, the presentation said.
Interest rates
The Central Bank Rate was held at 8.75% on October 7, and the 91-day Treasury bill averaged 8.748% on October 26. Mulisa expects short-term rates to stay in single digits into 2027, supported by the fuel VAT cut and a stable shilling. Tighter policy in the US, euro area, Japan and the UK is a third risk, because it can pull capital out of emerging markets. See how rates affect your savings in Treasury bills vs bonds.
What businesses should do
- Budget for higher transport and input costs through the rainy season.
- Build stock buffers for goods that move by road from flood-prone areas.
- Lock in financing while short-term rates stay in single digits, if expansion is planned.
KCB Group CEO Paul Russo said the bank had issued letters of credit worth over KSh1.074 trillion under the government-to-government fuel import arrangement, and reported 2025 profit before tax of KSh90.9 billion, up 11%.
What it means for households
For households, the main channel is prices. Fuel feeds into fares, food transport and electricity costs, so any rise in pump prices quickly shows up in the cost of living. Heavy rains add to this when roads are cut and fresh produce cannot reach markets, which pushes up the price of vegetables and other perishable foods. Families can prepare by keeping a small emergency fund, buying dry foods in bulk when prices are reasonable and watching monthly fuel price reviews by the Energy and Petroleum Regulatory Authority, which are announced on the 14th of each month.
Savers, on the other hand, can still earn positive real returns while short-term rates stay near 8.7% and inflation is around 7%. That gap is narrow, so it is worth comparing money market funds, Treasury bills and fixed deposits before locking money away.
What to watch next
- The next Monetary Policy Committee decision and whether the Central Bank Rate stays at 8.75%.
- Monthly fuel price reviews and the path of global oil prices.
- Rainfall and flood reports for the October to December season.
- November inflation data from the Kenya National Bureau of Statistics.
FAQ
What is Kenya’s GDP growth forecast for 2026?
KCB cited IMF projections of 4.5% for 2026 and 4.7% for 2027.
What is the Central Bank Rate in Kenya?
8.75%, held by the Monetary Policy Committee on October 7, 2026.
How did El Niño affect Kenya’s economy before?
In the 1997–98 El Niño, growth fell to 1.8% in 1998 from 4.6% in 1996.
Updated October 31, 2026.
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