Kenya’s Central Bank has decided to maintain its benchmark interest rate at 8.75%, pausing nearly two years of gradual cuts. The Monetary Policy Committee (MPC), led by Governor Kamau Thugge, made the announcement on Wednesday, emphasizing caution amid global uncertainties. This decision follows 10 consecutive rate reductions totaling 425 basis points since August 2024.
Policymakers highlighted the ongoing US-Israeli conflict involving Iran as a key factor influencing their pause. Governor Thugge noted that disruptions to global supply chains have caused energy price spikes, creating potential risks for Kenya’s economy. “Despite expected upward pressure from higher energy prices, overall inflation is anticipated to remain within the target range in the near term,” Thugge said, citing stable food prices and a broadly steady exchange rate.
Kenya’s headline inflation rose slightly to 4.4% in March from 4.3% in February but remains comfortably below the midpoint of the central bank’s 2.5% to 7.5% target range. The MPC stated that holding the rate steady is appropriate to maintain inflation control, stabilize the exchange rate, and mitigate the impact of rising fuel and commodity costs. This approach mirrors that of other African central banks, including South Africa, which have also paused policy changes to assess global risks.
The CBK revised its economic forecasts amid these uncertainties. The growth projection was lowered to 5.3% from an earlier 5.5%, while the current account deficit is now expected at 3% of GDP, up from 2.2%. The Kenyan shilling has softened slightly, breaching the 130 mark against the US dollar for the first time since November, but reserves remain strong at $13.7 billion, covering nearly six months of imports.
Looking ahead, the Central Bank of Kenya is carefully monitoring the situation. Stable food prices and prudent monetary policies continue to support inflation control, but rising global energy costs and geopolitical tensions could test the upper limits of the target range. The MPC remains prepared to adjust policy if necessary, balancing domestic economic stability with global uncertainty.
source: nairametrics