Policymakers in East Africa’s largest economy have left the benchmark lending rate unchanged at 8.75% as a cautionary measure to counter potential fallout from the ongoing U.S. and Israel strikes in Iran.
CBK’s decision comes amid a two-week ceasefire announced this week even as the military attack on Iran crossed into its second month, leaving global prices spiraling and markets on edge.
Kenya’s inflation stood at 4.4% in March 2026, still below the 5% midpoint of the CBK’s target range of 2.5–7.5%.

The Central Bank of Kenya (CBK) has slammed the breaks on easing the benchmark Central Bank Rate (CBR), unchanged at 8.75 per cent at its second sitting this year. The hold is a shift indicating a cautionary stance as the negative impact of increasing oil prices triggered by the conflict in the Middle East.

CBK’s decision comes amid a two-week ceasefire announced this week even as the military attack on Iran crossed into its second month, leaving global prices spiraling and markets on edge.

Market data shows that crude prices surged by over 18 per cent, crossing $110 a barrel at peak, as traders priced in astronomical risks to shipping lanes in the Strait of Hormuz, a vital chokepoint off Iranian shores that handles 20 per cent of the world’s oil.

Official statistics show that Kenya’s macroeconomic fundamentals are strong. Inflation stood at 4.4 per cent in March 2026, still below the 5.0 per cent midpoint of the CBK’s target range of 2.5–7.5 per cent.

At the same time, core inflation, a measure that edits out food and fuel costs, printed at 2.1 per cent, due to a decrease in the prices of maize flour and sugar. During the month under review, non-core inflation, which features the cost of fresh produce and energy, accelerated to 10.8 per cent in March from 10.1 per cent in February, driven by sharp rises in tomatoes and Irish potatoes.

Kenyan farmers expect higher food prices due to energy costs

More ominously, the March Agriculture Sector Survey revealed a dramatic shift in expectations. Just one month earlier, farmers and traders had expected food prices to fall due to favourable rains. Now, they anticipate upward pressure from higher fuel and fertiliser costs.

“Despite expected upward pressure from higher energy prices, overall inflation is expected to remain within the target range in the near term,” the MPC said in its statement, signed by Governor Dr. Kamau Thugge. “Supported by appropriate monetary policy actions, expected stability in food prices attributed to favourable weather conditions, and a broadly stable exchange rate.”

The MPC explained that there is need to “monitor any second-round effects” should such effects materialize, the 8.75 per cent rate may prove unsustainable requiring further interventions.

The ongoing conflict in the Middle East has triggered a downward revision of Kenya’s growth. Real GDP expanded by an estimated 5.0 per cent in 2025, up from 4.7 per cent in 2024, powered by a recovery in manufacturing, services, and agriculture.

MPC cut its 2026 growth projection to 5.3 per cent, down from 5.5 per cent, blaming it on looming jump in energy costs, trade routes, and tourism sentiment. “This outlook is subject to risks, particularly a prolonged conflict in the Middle East, and elevated trade policy uncertainties,” the committee stated.

The external accounts are already feeling the strain with Kenya’s current account deficit rising to 2.4 per cent of GDP in the year to February 2026, up from just 1.3 per cent a year earlier. For the full year 2026, the CBK now projects a deficit of 3.0 per cent of GDP, attributable to a negative impact of oil bills, and a hit on the transport and tourism services industry as well as reduced remittances from Kenyans living and working abroad.

Kenya’s foreign exchange

Currently, Kenya’s foreign exchange buffer remains health, standing at $13.35 billion, an equivalent of 5.68 months of import cover. Kenya’s reserves are well above the East African Community’s statutory minimum of 4.0 months. For over a year, Kenyan shilling has remained strong, trading at an average of 130 units to the USD.

In the banking industry, borrowers have been receiving a relief with gradual cuts in lending rates. Interest rates peaked at 17.2 per cent in late 2024 before decreasing to 14.7 per cent in March 2026. Private sector credit growth accelerated to 8.1 per cent in March, a dramatic turnaround from the contraction of 2.9 per cent seen in January 2025.

“Growth in credit to key sectors of the economy, particularly building and construction, trade, agriculture, and consumer durables remained strong,” the MPC noted. A newly revised Risk-Based Credit Pricing Model, fully implemented in March, is expected to further improve monetary policy transmission and enhance transparency in loan pricing.

However, borrowers are facing some difficulties. The ratio of gross non-performing loans (NPLs) edged up to 15.6 per cent in March from 15.4 per cent in December, with problem loans concentrated in personal and household, trade, agriculture, and manufacturing sectors. Banks continue to make adequate provisions, but rising NPLs will bear close watching if the oil shock slows economic activity.

Africa-wide context: a continent divided by oil and interest rates

Kenya’s 8.75 per cent rate looks moderate, even low, when placed alongside the punishingly high policy rates elsewhere on the continent. For instance, the Central Bank of Nigeria (CBN) has kept its monetary policy rate at 26.5 per cent since late 2025, after a relentless hiking cycle that began in 2022.

Governor Yemi Cardoso has signalled that rates will remain high until inflation, which stood at 24.1 per cent in March 2026, down from a peak of 34 per cent, decisively trends toward the 15–21 per cent target range.

The Middle East oil shock presents a cruel irony for Nigeria. As a major crude exporter, the country benefits from higher oil prices in dollar terms. But domestic fuel subsidies, though partially reformed, mean that international price spikes quickly feed into pump prices, transport costs, and food inflation.

The naira, which lost nearly 70 per cent of its value against the dollar in 2024–2025, has stabilised but remains fragile. CBN officials privately worry that another external shock could force yet another devaluation or an emergency rate hike beyond 27 per cent.

Further North, Egypt’s central bank has held its overnight deposit rate at 24 per cent since March 2025, following a dramatic 600-basis-point hike in 2025. The country emerged from a crippling foreign currency crisis only after a $35 billion investment deal with the UAE and an expanded $8 billion IMF programme. Inflation has cooled from a peak of nearly 40 per cent to 28 per cent in March 2026, still far above the target range of 5–9 per cent.

The Middle East conflict is existential for Egypt. The Suez Canal, a critical source of hard currency, has seen traffic fall by more than 40 per cent since late 2025 as shipping lines reroute away from the Red Sea due to Houthi attacks and now the US‑Israel‑Iran escalation. Suez revenues, which had begun to recover, are falling again.

At the same time, Egypt is a large importer of wheat and energy. Higher oil prices worsen its trade deficit and put pressure on the pound, which has held steady only through aggressive central bank intervention. Analysts expect Egypt to remain on hold at 24 per cent for the rest of 2026, with no room to cut.

Ghana maintains key rate as South Africa holds repo rate

Ghana presents a rare, albeit fragile, success story. After defaulting on most of its external debt in 2022, the country completed a painful domestic debt exchange and secured a $3 billion IMF programme. The Bank of Ghana has maintained its policy rate at 28 per cent since mid-2025, as inflation fell from a staggering 54 per cent in late 2023 to 19.5 per cent in March 2026.

Elsewhere, the South African Reserve Bank (SARB) has held its repo rate at 7.75 per cent since November 2025, after cutting by 100 basis points from a peak of 8.75 per cent. Governor Lesetja Kganyago has stressed that the SARB remains data-dependent, with headline inflation at 5.1 per cent, just above the 4.5 per cent midpoint of the 3–6 per cent target range.

South Africa’s relative monetary restraint reflects a different economic reality. The country is a net importer of oil but has a sophisticated refining and hedging system that smooths price shocks.

More importantly, the rand is a freely floating, liquid currency that tends to absorb external shocks without requiring drastic rate moves. However, the Middle East conflict has driven the rand to 21.50 against the dollar, its weakest level in 18 months, raising the risk of imported inflation. SARB officials have signalled that another hike cannot be ruled out if the oil rally persists.