Kenya’s Central Bank has decided to keep its benchmark interest rate at 8.75%, pausing the easing cycle that has been in place for nearly two years. The decision was announced by CBK Governor, Kamau Thugge, on Wednesday after a meeting of the Monetary Policy Committee (MPC).

Policymakers opted to maintain the rate while assessing the potential impact of the ongoing US-Israeli conflict involving Iran and its effects on Kenya’s economy. The move is also aimed at managing inflation levels.

CBK's Rationale for Rate Hold

During the meeting, the CBK MPC stated that holding the Central Bank Rate (CBR) at the current level is appropriate to maintain inflation within the 2.5% to 7.5% target range and to stabilize the exchange rate. The committee observed that headline inflation stood at 4.4% in March, slightly up from 4.3% in February.

However, the bank also warned of potential risks from global energy prices due to tensions in the Middle East. Governor Thugge noted, “Despite expected upward pressure from higher energy prices, overall inflation is anticipated to remain within the target range in the near term, aided by stable food prices driven by favorable weather and a broadly stable exchange rate.”

He further explained that the ongoing conflict in the Middle East has disrupted global supply chains, causing a sharp rise in energy prices and introducing greater risks to the global economic outlook. Thugge also highlighted that major central banks globally have kept their interest rates steady as they evaluate the long-term effects of the conflict on inflation and economic growth.