The Kenya Bankers Association has urged the Central Bank of Kenya to keep the policy rate at 9.00% on Tuesday, warning that another cut would be mistimed as banks complete a system-wide shift to risk-based loan pricing and as food-inflation risks tilt higher.
- •The call shapes what is now one of the most consequential MPC meetings in two years, with policymakers choosing between a record 10th straight cut, a first hold since June 2024, or the first rate hike since February 2024.
- •In a research note ahead of the meeting, KBA said previous rate cuts have not fully transmitted to lending rates, even though KESONIA has consistently tracked the CBR inside the policy corridor.
- •With inflation risks skewed upward, monetary transmission incomplete, credit already healing, and banks mid-transition on pricing, holding the CBR at 9.00% offers the least disruptive path for lenders, borrowers, and the shilling ahead of the March 1 deadline for all banks to migrate to KESONIA or CBR benchmarks.
The association said a pause would allow the new framework to bed in, improve price comparability across lenders, and make risk-based pricing more transparent for borrowers.
Inflation is subdued but remains fragile with the headline inflation eased to 4.4% in January, yet KBA warned that non-core inflation remains volatile and heavily driven by food prices. A prolonged dry spell across key farming zones threatens supply and could push prices higher, while global trade tensions and creeping supply-chain pressures add external risk. The group said this skew in the inflation outlook makes further easing imprudent for now.
Growth has been resilient but uneven with Kenya expanding 4.9% in the third quarter of 2025, up from 4.2% a year earlier, with services carrying activity, agriculture swinging with weather, and industry providing steady but modest support. Manufacturing sentiment has stayed in expansion territory, with the PMI above 50 for five consecutive months in January.
Private-sector lending grew 6.3% in November, rebounding sharply from contraction earlier in 2025, led by manufacturing, construction, trade, and consumer durables. KBA said banks remain cautious as they monitor non-performing loans, particularly in real estate, but the trend suggests monetary easing is already feeding through.
On external stability, the shilling has been steady, backed by strong remittances, recovering tourism, and resilient exports of tea, horticulture, and coffee. Usable foreign-exchange reserves stood at USD 12.33 billion as of Jan. 29, equal to 5.3 months of import cover, above the statutory floor. Still, KBA cautioned that heavy external-debt servicing in 2026 remains a vulnerability, especially if Kenya diverges sharply from the Fed and ECB, which have paused easing.
