Kenya rate-cut cycle stays on hold as MPC weighs inflation risks

Kenya’s Monetary Policy Committee (MPC) kept the Kenya central bank rate unchanged at 8.75% on August 11. This decision marks the third consecutive pause, as policymakers weigh inflation risk against improving credit growth and external risks.

The committee's decision was premised on inflation rising to 6.5% in July from 6.4% in June. While the readings remained within Kenya’s preferred range, the MPC noted that “The Central Bank Rate, unchanged at 8.75%, remains appropriate to ensure that inflation expectations remain anchored within the target range, and the exchange rate remains stable.”

For forex traders in Kenyan markets, the latest MPC decision suggests that the next phase of Kenya’s decision will depend on incoming economic data rather than on a predetermined path of further cuts.

Why did the MPC decide to hold the rate?

The CBK's rate history indicated that the last rate cut was in February 2026, when the rate was lowered from 9% to 8.75%. The Kenya central bank rate has been gradually lowered over the past six months, from August 2024 to February 2026.

The August 11 decision reflects the MPC's decision to go through a balancing path rather than making a clear-cut call. The inflation rate has ticked higher for two straight months; however, credit growth and economic output have both strengthened. 

The headline inflation rate for Kenya was up to 6.5%, following 6.4% in June. Kenya's National Bureau of Statistics said the rise was largely due to increased transport, food and housing prices, after the CPI jumped from 154.91 in June to 155.20 in July. 

Private sector credit growth reached 10.2% in July compared with a contraction of 2.9% in January 2025. This improvement has given the committee grounds to stay patient rather than make Kenya central bank rate cuts or shift toward tightening.

The banking sector continues to have sufficient liquidity and capital adequacy ratios, the CBK said. The industry sector and services also had a strong performance, with the economy growing 5.3% in the first quarter of 2026 compared to 4.9% in the same period of 2025. 

Foreign exchange reserves also factored into the Committee's confidence. Reserves stood at 14.934 billion USD (as of August 27), equivalent to 6.2 months of import cover, which the CBK described as an adequate buffer against short-term domestic and external shocks.

The tightest spreads in the industry

We outperformed 15 other brokers with spreads 50% lower across 28 forex pairs.*

Try a free demo

*

Exness Pro account spreads were 50% lower than the average spreads of 15 other brokers on 28 forex majors and minors during the week of 5–10 April 2026, when comparing the tightest spread-only accounts.

Can the MPC make a new decision before the next meeting?

The Monetary Policy Committee will reconvene on October 7, and its next decision will depend on how several open questions resolve. 

Oil prices related to the Middle East conflict may be considered during the next meeting. If oil prices increase, it may push inflation higher and force the MPC to extend its pause. If prices reduce or become stable, it could ease the pressure on the MPC and create space for the easing cycle to continue. 

The MPC may also consider the possibility of El Niño. If the weather disaster happens as earlier forecasted, it could increase prices of food and push non-core inflation higher. However, favorable weather may support the CBK's existing growth projections and give the Committee greater confidence moving forward. 

Private sector credit growth is another factor affecting the MPC's decision. The CBK noted that lower bank lending rates have supported private sector credit growth. If this growth continues, the MPC may feel less pressure to reduce the rate. 

The exchange rate and external conditions may also influence the MPC's decision. A stable shilling may help contain imported inflation, while renewed pressure may increase the cost of imports and complicate the inflation outlook. The CBK identified exchange-rate stability1 as part of the conditions supporting the current policy stance.

Finally, global monetary policy may affect the MPC's decision. Central banks in major economies are also assessing the impact of higher energy prices and persistent inflation, making global interest-rate conditions relevant to capital flows and emerging-market currencies. 

If other banks in major economies make decisions to hold rates or make further cuts, the CBK may follow suit for either decision.

What should forex traders monitor before the October MPC meeting?

Ahead of the next Monetary Policy Committee meeting, traders may watch out for several indicators that may determine how the committee arrives at its next decision. 

The first is inflation. The August increase to 6.59% means the direction of prices between now and October may become a more determining factor than the July figure considered at the August meeting. More increase would reduce the case for another Kenya central bank rate cut, while a moderation may lead to discussions about easing. 

The second is global oil prices. Since Kenya imports most of its oil, an increase in oil prices could feed into transport and food costs and put additional pressure on the CBK. 

Traders may also monitor other major central-bank decisions. Changes in US interest-rate expectations, in particular, may affect global dollar demand, bond yields and risk appetite across emerging markets. 

Conclusion 

The Central Bank of Kenya has already made substantial monetary easing since 2024. All decisions made since 2024 have been influenced by domestic and global economic situations. 

However, with Kenya holding rates for the third time, the next decision in October may be open to another hold if the factors that led to the previous hold still exist. 

If inflation moderates, oil prices stabilize, and external conditions remain supportive, the committee may have room to consider further easing. The CBK may choose to maintain its rates unchanged for a longer duration if prices continue to increase. 

For more information on global economic conditions, visit Exness Insights. Traders looking to get more information about Kenya's economic growth and outlook can visit the Exness Blog page.