Kenya’s quest to speed up private sector credit growth to double-digits, for the first time since February 2024, now faces headwinds as fresh inflation and foreign exchange pressures pushed the Central Bank (CBK) to lean towards a cautious stance.
The country’s private sector credit has been on a recovery phase, gradually emerging from negative growth between December 2024 and February 2025 to reach a high of 8.1 percent in March 2026, marking 13 consecutive months of positive growth.
It has been two years and two months since the country posted double-digit growth of credit to the private sector, with the last time being February 2024, when it closed at 10.3 percent.
The recovery of private sector credit growth has been enabled by the CBK’s aggressive monetary easing cycle, which saw the benchmark rate fall from a high of 13 percent at the start of 2024 to the current 8.75 percent from April 8, 2026, a decline of 425.0 basis points aimed at boosting credit flow to the real economy.
This run now faces hiccups from rising inflation and geopolitical tensions that will force the CBK to re-draw its actions in the short term.
CBK Governor Kamau Thugge, says that after the apex bank’s latest pause on the benchmark rate at 8.75 percent in April, it will be keenly watching movements around inflation and foreign exchange to guide its decision in the June meeting.
‘The war introduces some complications. We have a situation where we have actually had to reduce our growth projection from 5.5 percent to 5.3 percent. We still believe there is more room for credit expansion and believe we should be able to get to double digits, but now have to watch what is happening with inflation and the exchange rate,’ he told Business Daily in an interview.
‘Since August 2024, we have been on an easing cycle because, in a sense, we had achieved our key mandate of stabilising prices, and the exchange rate was also stable,’ Dr Thugge says.
In particular, the CBK will keep close watch of the impact of the latest petroleum product price review on inflation. In the April 14 review, the price of super petrol and diesel were revised upward by Sh19.32 and Sh30.09 to Sh197.6 and Sh196.63 per litre, respectively.
Headline inflation closed March 2026 at 4.4 percent, with the non-core index, which tracks food and fuel, having risen to its highest point in three months at 10.8 percent, while the core index remained flat at 2.1 percent, pointing to relatively weak demand in the economy.
‘As we go to the Monetary Policy Committee meeting in June, one of the things we will be looking at will be what has happened with non-core inflation. Will the increase in fuel and transport inflation outweigh a potential decline in food inflation and therefore keep non-core inflation high? The core inflation, which has been stable, could also exhibit second-round effects from higher transport costs feeding in’, Dr Thugge says.
The CBK’s Monetary Policy Committee will also be keeping a close eye on the foreign exchange and the actions of major Central Banks such as the US Federal Reserve, the European Central Bank and the Bank of England to guide its decision.
On March 18, the US Federal Reserve held its benchmark interest rate unchanged, marking a swift departure from the three rate cuts that dominated its decisions in 2025. On March 19, the Bank of England also retained its benchmark rate at 3.75 percent, ending its stream of four rate cuts in 2025.
With Kenya’s foreign exchange reserves having come under pressure between March and April and declining from a peak of $14.6 billion (Sh1.9 trillion), translating to 6.2 months of import cover, to $13.3 billion (Sh1.7 trillion), translating to 5.6 months of import cover, CBK will be keen to guard against further pressure to limit potential capital outflows.
‘We will also be closely watching to see what the Central Banks in advanced economies will be doing with their interest rates. The last time we were slow in raising our interest rates, and we saw the impact of that on the exchange rate,’ Dr Thugge says.
Kenya has turned to the World Bank for additional funding to strengthen its external buffers and protect the Shilling’s stability in the wake of rapidly rising vulnerabilities following the US/Israel – Iran War.
This means that Kenya now expects to receive from the World Bank much more financing than the $750 million (Sh96 billion) loan that was factored into the 2025/26 budget at the start of the current financial year in June 2025.