The International Monetary Fund (IMF) has urged the Central Bank of Kenya (CBK) to cut its policy setting meetings to four from the current six in a year to align the regulator with data releases which will allow it to conduct elaborate forecasts on inflation.
The multilateral lender, which helped CBK improve its forecasting and policy analysis system (FPAS) through a technical assistance mission, noted that current forecasts are not synchronised with the release of quarterly national accounts data published four times a year.
CBK currently holds its policy setting meetings on a bimonthly basis, reaching up to six meetings a year but has the leeway to hold more meetings on a need/emergency basis.
The IMF, however, advises that CBK can subsequently increase its policy meetings to eight in a year after the initial slash to factor in updated data.
‘The mission recommended that CBK consider initially reducing the number of MPC meetings to four per year and later increased to eight,’ the IMF said in its technical report.
‘The four MPC meetings can align with quarterly national accounts releases and include fully-fledged forecasts. Subsequently, CBK could add four interim meetings between the main meetings based on updated data, including nowcasts and near-term projections.’
Real-time picture
Nowcasting refers to the use of high-frequency data such as retail sales to model a real-time picture of the economy without waiting for official quarterly reports.
The IMF observed that the CBK holds six meetings per year while the Kenya National Bureau of Statistics (KNBS) quarterly economic data is only published on four occasions –with a one quarter lag.
The release of the first quarter national accounts data for 2026 is for instance only expected at the end of June while fourth quarter economic data for 2025 was only available at the end of April.
Inflation targeting central banks like the CBK that implement the forecasting and policy analysis system typically initiate forecasting rounds shortly after the availability of quarterly economic data and conclude shortly before the policy setting meetings.
‘Given the misalignment between data publication and MPC meetings, some CBK forecast rounds have been compressed and relatively short, while others may begin several weeks after new data becomes available. If new CPI (inflation) is published between the analytical and main MPC meetings, staff may need to re-run the model within a very short time frame, with limited time for thorough analysis of the new data and forecast revisions,’ the IMF added.
In 2014, IMF helped Kenya develop its quarterly projection model (QPM) which underpins the current medium-term headline inflation target of five percent, with a tolerance band of 2.5 percentage points in either direction.
The fund has worked alongside CBK staff to improve Kenya’s inflation targeting including the most recent missions in 2024 and 2025.
The latest mission which ran from April 10 to April 17, 2025, undertook a comprehensive update of the core quarterly projection model (QPM) and added a new fiscal dynamic modelled around government spending and revenue to enhance the assessment of macroeconomic and policy implications of fiscal developments.
A model extension was also introduced to incorporate weather stocks, leveraging the World Bank climate risk data for Kenya, to better capture the impact of weather-related shocks on supply-side inflation pressures.
In addition to tweaking the MPC calendar, the IMF has advised CBK to have a more forward-looking monetary policy communication with the goal of anchoring medium-term inflation expectations.
Monetary policy consists of decisions and actions taken by the Central Bank to ensure that the supply of money in the economy is consistent with growth and price objectives set by the government.
The objective of the policy is to maintain price stability in the economy which translates to low and stable inflation.
CBK’s monetary policy is guided by a monetary programme, anchored on economic growth and inflation targets provided by the National Treasury.
Monetary policy decisions are made by the Monetary Policy Committee (MPC), which meets at least once every two months and reviews data and analysis from various sources enabling it to decide on any action to maintain or vary its stance.
At its recently concluded meeting this month, the MPC voted to retain the policy rate/benchmark rate at 8.75 percent for a second consecutive time noting the need to adopt a wait and see stance on the evolution of inflation amid the US-Israel war on Iran which has escalated fuel prices.
Kenya’s inflation raced to 6.7 percent in May from 5.6 percent in April due to higher prices arising from the elevated global oil prices but held below the upper target of 7.5 percent.
‘Having considered these developments, including the potentially transitory nature of the conflict, the Committee concluded that the current monetary policy stance, with the Central Bank Rate unchanged at 8.75 percent, remains appropriate to ensure that inflation expectations remain anchored within the target range, and the exchange rate remains stable,’ said CBK Governor Kamau Thugge who is also the Chairman of the MPC.