Kenya’s central bank has slammed the brakes on its aggressive easing cycle, keeping its benchmark lending rate steady at 8.75% to guard against fresh inflationary pressures unleashed by the Iran conflict. The decision, announced Wednesday after a two-day Monetary Policy Committee meeting, marks the first pause since the bank began slashing rates in late 2024.
Annual inflation edged up only modestly to 4.4% in March from 4.3% the previous month and remains comfortably inside the government’s 2.5-7.5% target band. Yet policymakers warned of “second-round effects” from the global energy price spike that followed U.S. and Israeli strikes on Iran and Tehran’s retaliation. Even after oil prices tumbled on news of a two-week U.S.-brokered ceasefire announced by President Donald Trump, Brent crude is still trading well above pre-war levels, carrying a hefty geopolitical risk premium.
“The Committee concluded that the current monetary policy stance remains appropriate to ensure that inflation expectations remain anchored within the target range, and the exchange rate remains stable,” the Central Bank of Kenya said in its statement. It added that the MPC would “monitor any second-round effects of the recent increase in international oil prices on overall inflation.”
Revised forecasts signal caution
The bank also trimmed its 2026 economic growth projection to 5.3% from 5.5%, citing risks to key sectors from the Middle East turmoil. The current-account deficit forecast was widened to 3.0% of GDP from 2.2%, reflecting higher import costs for East Africa’s largest economy, which imports nearly all its fuel.
The pause comes after ten consecutive rate cuts that had brought borrowing costs down sharply to support a post-pandemic rebound. Lower rates had helped revive credit growth and eased pressure on the Kenyan shilling. But with global energy markets still volatile, officials chose prudence over further stimulus.
For investors, the move underscores how quickly geopolitical shocks can ripple into emerging markets. Kenya’s tourism, manufacturing and agriculture sectors, all sensitive to fuel and transport costs, face headwinds that could slow the recovery just as the country eyes infrastructure projects funded by foreign capital. The shilling, which had stabilized in recent months, may come under renewed pressure if oil remains elevated.
Analysts had largely expected the hold, according to a Reuters poll, but the downward revisions to growth and the deficit highlight the MPC’s unease. While the immediate ceasefire offers breathing room, few expect energy prices to revert quickly to pre-conflict levels.
The central bank’s measured tone sends a clear signal: in an era of renewed great-power friction, even well-managed African economies must navigate external storms with caution. Markets will watch closely whether the pause proves temporary or the start of a longer wait-and-see approach.
