The Monetary Policy Committee (MPC) on Monday retained the Central Bank Rate (CBR) at 8.75 per cent, saying inflation remains within the target range despite persistent pressure from food prices and uncertainty in the global economy.
Speaking during a post Monetary Policy Committee (MPC) presser on Wednesday, Governor Kamau Thugge said the bank had factored the potential impact of adverse weather conditions into its economic projections.
This is particularly as the country enters the October-December period, when heavy rains could affect agricultural production, food prices and overall economic activity.
“We have projected the net effect of El Nino and ongoing dryness on inflation. We expect it to remain within a target range,” Thugge told journalists during the post-MPC briefing.
Kenya’s annual inflation stood at 6.5 per cent in July, up marginally from 6.4 per cent in June.
The CBK said inflation nevertheless remained within its target range, with lower energy prices helping to moderate some of the pressure.
Core inflation remained relatively stable at 3.2 per cent in July, compared with 3.1 per cent in June, while non-core inflation eased marginally to 15 per cent from 15.1 per cent.
Food prices, however, remain a key source of concern, with Irish potatoes, tomatoes, kale, cabbages and onions among commodities recording elevated prices.
The CBK expects inflation to remain within the target range in the near term, supported by monetary policy measures, government interventions, stability in food prices and a relatively stable exchange rate.
The weather outlook has added another layer of uncertainty to the bank’s economic projections.
The Kenya Meteorological Service has estimated an 81 per cent chance of a strong El Nino this year, while government assessments put the probability of its effects continuing into early next year at 97 per cent.
Thugge said the CBK had consequently adopted a conservative outlook for fourth-quarter growth, given the uncertain impact of heavy rains on agriculture and other sectors.
Kenya’s economy expanded by 5.3 per cent in the first quarter of 2026, up from 4.9 percent during a similar period last year.
The CBK now projects full-year growth at 4.9 per cent, rising to 5.3 percent in 2027.
However, Thugge said growth could outperform the current forecast if the rains deliver a net positive impact on agriculture.
“Potentially, we could have a much higher growth than the 4.9 if it turns out that the net impact of the El Nino rains would be positive,” he said.
The cautious stance comes as the CBK balances inflation risks against the need to support economic activity.
Private-sector credit growth remained strong at 10.2 per cent in July, while average commercial bank lending rates eased to 14.3 per cent from 14.4 per cent in June.
