Kenyans could soon face higher borrowing costs after the Kenya Bankers Association (KBA) urged the Central Bank of Kenya (CBK) to consider raising its benchmark lending rate to contain rising inflationary pressures.
In a research note released on June 3 ahead of the Monetary Policy Committee (MPC) meeting scheduled for June 9, the KBA noted that inflation is rising mainly due to higher global oil prices, which have pushed up fuel costs.
The report also highlighted slowing economic growth and growing pressure on Kenya’s import bill.
While the Kenya shilling remains stable, the bankers’ lobby argued that higher fuel prices could increase transport, manufacturing, and production costs, resulting in higher prices for goods and services across the economy.
The association said an upward adjustment of the Central Bank Rate (CBR) would help anchor inflation expectations and support price stability in the medium term.
“As the Central Bank of Kenya’s Monetary Policy Committee (MPC) prepares to meet next week, the Kenya Bankers Association Centre for Research on Financial Markets and Policy is recommending a modest increase in the Central Bank Rate (CBR) to help control rising inflation,” reads the report in part.
“The Centre therefore notes that raising the CBR can help keep inflation under control and support price stability in the months ahead.”
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In April, CBK retained its benchmark lending rate at 8.75% as policymakers assess emerging inflation risks and global oil prices.
In its latest MPC statement following the April 8 meeting, the central bank indicated that the current stance remains appropriate to keep inflation within target while safeguarding exchange rate stability.
The recommendation to CBK comes as inflation rose to 6.7 percent in May 2026, up from 4.4 percent in March, driven largely by rising global oil prices amid escalating tensions in the Middle East.
According to the KBA, higher fuel prices are already pushing up transport, production and distribution costs, increasing the risk of broader price increases across the economy.
“Inflationary pressures have re-emerged from an oil supply shock, triggering expectations of higher price rises from the shock’s second-round effects,” the report says.
The bankers’ lobby argues that a timely increase in the Central Bank Rate would help prevent inflation expectations from becoming entrenched.
However, the proposed rate hike comes at a time when Kenya’s economy is showing signs of slowing.
The report notes that economic growth eased to 4.6 percent in 2025 from 4.7 percent in 2024 and 5.7 percent in 2023, with growth projected to slow further to 4.5 percent in 2026.
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Recent Purchasing Managers’ Index (PMI) data also points to weaker business activity, with the index remaining below the 50-point mark for the third consecutive month at 46.6 in May.
The association attributes the slowdown to rising fuel and input costs, which have increased businesses’ operating expenses and dampened consumer demand.
Despite the slowdown, Kenya is still expected to outperform many advanced and emerging economies.
The report further notes that private-sector credit growth improved to 8.1 percent in March 2026 following lower lending rates, but remains constrained by uncertainty about future interest rates and elevated non-performing loans.
According to the association, the banking sector’s non-performing loan ratio remained high at 15.6 percent in March, posing risks to further credit expansion.
The Kenya shilling has remained stable, supported by strong foreign exchange reserves, tourism earnings and diaspora remittances. However, the report warns that higher oil prices could increase the country’s import bill and exert pressure on the currency.
The Monetary Policy Committee’s decision on June 9 is expected to be closely watched by borrowers, businesses and investors as it could signal the future direction of lending rates and the broader economy.
