NCBA Sees Stable Interest Rates as Kenya’s Fixed Income Market Holds Firm in Q3

Kenya’s fixed income market is expected to remain stable in the third quarter of 2026, with limited room for interest rate surprises as inflation remains contained and the Central Bank of Kenya (CBK) maintains a cautious policy stance, according to the latest NCBA Weekly Fixed Income Report.

NCBA says domestic inflation is likely to remain within the 6.0 to 7.0 percent range for the remainder of the year, significantly reducing the likelihood of a policy rate hike by the CBK. The bank notes that current market pricing has largely factored in prevailing inflation expectations, while a more realistic fiscal budget has further lowered the risk of abrupt interest rate movements.

The outlook comes against a backdrop of heightened global uncertainty, with renewed hostilities between the United States and Iran pushing global oil prices to a two-week high of about USD79 per barrel after Iran announced the closure of the Strait of Hormuz. The geopolitical tensions have prompted the International Monetary Fund (IMF) to lower its 2026 global growth forecast to 3.0 percent from 3.5 percent in 2025 while raising its inflation outlook to 4.7 percent.

According to NCBA, the evolving global environment is likely to result in fewer interest rate cuts by major central banks, higher terminal rates and continued volatility in global bond markets. The report also highlights that policymakers at the US Federal Reserve remain divided over the future direction of interest rates, while the European Central Bank is still weighing another 25-basis-point rate hike despite moderating inflation.

Locally, however, Treasury bill yields have remained largely unchanged over the past three weeks, signalling confidence in the current interest rate environment. The latest auction saw the 91-day Treasury bill yield ease marginally to 8.825 percent, while the 182-day paper edged up to 8.971 percent and the 364-day bill remained broadly stable at 8.992 percent. NCBA notes that the government’s recent infrastructure bond auction attracted strong investor demand, with the National Treasury accepting KSh70.6 billion after rejecting aggressive bids, demonstrating prudent debt management amid healthy market liquidity.

Looking ahead, the lender expects the government’s typically lower borrowing appetite during the third quarter to keep interest rates relatively stable. Across the region, Tanzania’s inflation eased to 4.0 percent in June, comfortably within the country’s target range following a recent policy rate increase, while Rwanda continued to face elevated inflation at 13.6 percent, suggesting monetary policy there is likely to remain tight for the rest of the year.

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