CBK Holds Interest Rate at 8.75% As Rising Fuel Costs Push Inflation Higher

By Emmanuel Korir

Kenya’s Central Bank has retained its benchmark lending rate at 8.75 percent, opting for caution as rising global oil prices continue to push up inflation and increase pressure on the cost of living. The decision was announced on Monday after a meeting of the Monetary Policy Committee (MPC), chaired by Central Bank Governor Dr. Kamau Thugge, who said the move was aimed at maintaining price stability while protecting the country’s economic recovery from growing external shocks.

The committee noted that inflation rose to 6.7 percent in May from 5.6 percent in April, this was largely driven by higher fuel and energy costs linked to global market disruptions. Despite the increase, inflation remains within the Central Bank’s preferred range, giving room to policymakers continue borrowing with costs unchanged.

Pressure from rising fuel prices has been particularly visible in transport and household expenses, with non-core inflation climbing sharply to 16 percent in May. However, underlying inflation remained relatively stable, signalling that broader price pressures are still under control.The Central Bank said inflation is expected to ease gradually in the coming months, supported by government fuel interventions, temporary tax relief measures, favourable weather expected to support food production and a stable Kenyan shilling .

At the same time, the country’s economic growth outlook has been revised downward. Kenya’s economy is now projected to expand by 4.9 percent in 2026, lower than an earlier forecast of 5.3 percent, following growth of 4.6 percent last year. The slowdown reflects weaker performance in agriculture and services, although construction and other industrial activities continue to show resilience.The banking sector, however, remains stable as Non-performing loans declined to 15.3 percent in May, while private sector lending continued to recover, growing by 9.3 percent. Commercial lending rates have also eased in recent months, offering some relief to businesses and households seeking credit.

Kenya’s current account deficit widened during the year to April due to increased spending on fuel, food imports, and capital goods. Irrigardless of that the Central Bank said the country remains financially stable, supported by strong foreign exchange reserves and continued inflows from investors and development partners.

The MPC stated that it will continue monitoring developments, especially movements in global oil prices and tensions in the Middle East, before its next policy review scheduled for August.

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Emmanuel Korir is a journalist who tells stories where markets, people, and policy meet