The Monetary Policy Committee (MPC) has lowered the Central Bank Rate (CBR) by 25 basis points to 8.75 percent from 9.00 percent, citing subdued inflation, improved private sector credit growth, and a resilient economic outlook.
The decision was taken during the MPC meeting held on February 10, 2026, as policymakers sought to further ease monetary conditions to support economic activity while keeping inflationary pressures firmly contained.
In its deliberations, the Committee observed that global economic growth has remained resilient, with growth estimated at 3.3 percent in 2025. This performance was attributed to lower-than-expected tariff rates on imports into the United States, improved global financial conditions, robust consumer spending, and a surge in investment in artificial intelligence-led technologies, particularly in advanced economies. The outlook for global growth in 2026 has been revised upwards and is expected to remain steady at 3.3 percent, supported by improved prospects in the United States, the Euro area, and China.
However, the MPC cautioned that risks to global growth remain elevated due to weak global demand, heightened trade policy uncertainty, and ongoing geopolitical tensions, particularly in the Middle East and the continued Russia-Ukraine conflict.
Global inflation eased in 2025 and is projected to decline further in 2026 and 2027, largely driven by lower energy prices and subdued global demand. While inflation in major economies has moderated in recent months, it remains above target in some jurisdictions due to persistent core inflation. Central banks in advanced economies have continued to ease monetary policy, albeit cautiously and unevenly, in line with their respective inflation and growth outlooks. International oil prices have moderated due to increased production and lower demand, though volatility persists amid global uncertainties, while food inflation has declined on the back of lower cereal and sugar prices.
On the domestic front, Kenya’s overall inflation declined to 4.4 percent in January 2026 from 4.5 percent in December 2025, remaining below the midpoint of the target range of 5±2.5 percent. Non-core inflation fell to 10.3 percent from 11.2 percent, mainly due to lower prices of vegetables such as tomatoes and onions. Core inflation edged up slightly to 2.2 percent from 2.0 percent, reflecting higher prices of some processed food items, particularly maize flour.
The MPC expects overall inflation to remain below the midpoint of the target range in the near term, supported by stable energy prices, moderated food prices, and exchange rate stability.
Economic activity remained resilient in the third quarter of 2025, with real GDP growth recorded at 4.9 percent, supported by a rebound in the industrial sector and continued strength in the services sector. Leading indicators point to improved performance in the fourth quarter. Overall economic growth for 2025 is estimated at 5.0 percent, slightly lower than the previous projection of 5.2 percent, largely due to a slowdown in agricultural performance during the third quarter.
Looking ahead, the economy is projected to grow by 5.5 percent in 2026 and 5.6 percent in 2027, driven by resilience in the services sector, continued recovery in industry, and stable growth in agriculture. This outlook, however, is subject to risks including adverse weather conditions, global trade uncertainties, and geopolitical tensions.
Survey findings also supported the decision to ease policy further. Respondents to the January 2026 Agriculture Sector Survey expect stable pump prices, a stable exchange rate, and favourable weather conditions with the anticipated onset of the long rains, which are expected to support price stability. Nonetheless, respondents noted that seasonal dry conditions before the rains could exert moderate upward pressure on prices of some food items, particularly vegetables.
Similarly, the CEOs Survey and Market Perceptions Survey conducted in January 2026 revealed sustained optimism about business activity and economic growth over the next 12 months. The positive outlook was attributed to a stable macroeconomic environment, low inflation, declining interest rates, favourable weather expectations, increased infrastructure spending, digital innovations, and improved private sector credit growth. However, some respondents expressed concerns over weak consumer demand, the high cost of doing business, and rising global uncertainties.
The MPC also noted developments in the external sector, with the current account deficit estimated at 2.4 percent of GDP in 2025, compared to 1.3 percent in 2024. This was largely due to lower service receipts and secondary income transfers. Goods exports increased by 6.1 percent, driven by horticulture, coffee, tea, manufactured goods, and apparel, while imports rose by 9.1 percent due to higher intermediate and capital goods imports. Services receipts grew by 1.1 percent, supported by travel services, and diaspora remittances increased by 1.9 percent.
The current account deficit is projected to remain stable at 2.2 percent of GDP in 2026 and 2027 and is expected to be more than fully financed by financial account inflows. The Central Bank of Kenya’s foreign exchange reserves stood at USD 12.46 billion, equivalent to 5.37 months of import cover, providing an adequate buffer against external shocks.
The banking sector remained stable and resilient, with strong liquidity and capital adequacy. The ratio of gross non-performing loans declined to 15.5 percent in January 2026 from 16.7 percent in October 2025 and 17.6 percent in August 2025, with improvements recorded in key sectors including real estate, manufacturing, trade, construction, and personal lending.
Private sector credit growth continued to recover, rising to 6.4 percent in January 2026 from 5.9 percent in December 2025, compared to a contraction of 2.9 percent in January 2025. Lending to sectors such as construction, trade, and consumer durables remained robust, supported by declining lending rates. Average commercial bank lending rates fell to 14.8 percent in January 2026 from 15.0 percent in October 2025 and 17.2 percent in November 2024.
The Committee also highlighted the revised Risk-Based Credit Pricing Model (RBCPM), which will be fully operational by March 2026, noting that it will improve the transmission of monetary policy decisions to lending rates and enhance transparency in loan pricing.
To further strengthen monetary policy effectiveness, the MPC approved a narrowing of the interest rate corridor around the CBR from ±75 basis points to ±50 basis points and adjusted the Discount Window rate to 50 basis points above the CBR.
Taking all these factors into account, the Committee concluded that there was scope for further easing of monetary policy to stimulate bank lending and support economic activity, while ensuring inflation expectations remain anchored and the exchange rate remains stable.
The MPC said it will continue to closely monitor global and domestic developments and stands ready to take further action as necessary. The Committee is scheduled to meet again in April 2026.
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