The Central Bank of Kenya left its benchmark lending rate unchanged at 8.75 per cent on Wednesday, the fourth meeting in a row without a move, as higher oil prices push inflation towards the top of its target band.
The Monetary Policy Committee said it expects inflation to stay within the 2.5 to 7.5 per cent range in the near term, helped by a stable shilling, fuel subsidies and the temporary cut in VAT on fuel. Inflation rose to 6.8 per cent in September from 6.6 per cent in August, driven by food, transport and energy costs.
“The MPC noted that there is need to continue monitoring the evolution of global oil prices and any second-round effects on inflation,” Governor Kamau Thugge said. The committee will meet again in December.
Lending picks up
The stronger story is in bank lending. Credit to the private sector grew 10.6 per cent year on year in September, up from 10.3 per cent in August. In January 2025 it was shrinking by 2.9 per cent.
Loan quality is also improving. The ratio of gross non-performing loans to total loans fell to 13.9 per cent in September from 14.8 per cent in June and 17.6 per cent in August 2025.
Borrowers are still paying a lot for that credit. The average commercial bank lending rate edged up to 14.4 per cent in September from 14.3 per cent in August, leaving a wide gap with the policy rate. The central bank has pointed to its risk-based credit pricing model as the tool that should narrow that gap over time.
Growth forecast raised
A day after the decision, Dr Thugge said the bank had raised its 2026 growth forecast to 5.0 per cent from 4.9 per cent and expects 5.3 per cent in 2027, compared with 4.6 per cent in 2025. Construction linked to affordable housing, infrastructure projects and the settlement of pending bills are expected to lift industry, while services are forecast to grow 5.6 per cent this year.
The current account deficit is projected to widen to 3.2 per cent of GDP this year from 2.1 per cent, mainly because of a costlier oil import bill and slower remittances. The bank expects the gap to be more than fully financed.
The committee listed a prolonged Middle East conflict, trade policy uncertainty and possible El Niño weather shocks as the main risks to that outlook.
Sources: Central Bank of Kenya | Capital FM | People Daily
Photo: Omar David Sandoval Sida / Wikimedia Commons (CC BY-SA 4.0)
