The Central Bank of Kenya (CBK) has cut its inflation outlook further for the next 12 months as it sees continued stability in consumer prices and the exchange rate.
The apex bank said on Wednesday that it expects the cost of living to fall steadily to reach lows of 3.7 percent in June 2026, having previously forecast inflation to fall to 4.3 percent in the same month.
Inflation dropped to 4.5 percent last month compared to 4.6 percent in October.
The expected low inflation rate will give the CBK further room to cut interest rates if it deems the move as appropriate in driving the recovery of private sector credit.
“Our focus for inflation going forward for the 12 months up to November 2026 shows that inflation will remain below the midpoint of our target range and will not exceed the five-percent rate all the way,” CBK Governor Dr. Kamau Thuigge said.
CBK has a mandate to keep inflation low and stable at no more than 7.5 percent but not less than 2.5 percent by deploying monetary policy tools including interest rates.
Previously in August, CBK had projected inflation to run hot, touching a high of 5.2 percent in March next year.
Core inflation or non-food/non-fuel inflation which contributes to an approximate 81 percent of the overall inflation rate is expected to anchor the slow growth in consumer prices over the next 12 months.
Non-core inflation which covers food and fuel prices is expected to rise over the next quarter on expensive vegetable prices but fall at the onset of the heavy rains season which is expected to start in April.
“Non-core inflation especially for vegetables remains elevated for the next two to three months and then it does come down starting with the long rains around April,” Dr Thugge added.
The November 2025 Monetary Policy Committee (MPC) Market Perceptions Survey and Agriculture Sector Survey shows that inflation expectations remain anchored within the 2.5 to 7.5 percent target range in the near term.
Respondents to the agriculture survey noted they expect improved food supply following recent harvests particularly of maize, stable pump prices and exchange rate stability to support a stable inflation rate in the near-term.
Seasonal factors associated with December festivities and higher prices for some food items especially vegetables are however expected to apply moderate upward pressure to overall inflation.
“The November 2025 MPC Market Perceptions Survey shows that inflation expectations in the near-term remain anchored within the target range, mainly due to exchange rate stability, improved food supply, and stable global oil prices which are expected to keep local pump prices and transport inflation stable,” CBK said.
The apex bank cut its benchmark rate for the ninth straight MPC meeting on Tuesday in a move to support the recovery of bank lending on the heels of both stable inflation and exchange rate.
Private sector credit growth hit a 19-month high in November mirroring recovery in lending on falling borrowing costs after a prolonged contraction period in the past year.
“Growth in commercial banks’ lending to the private sector continued to improve and stood at 6.3 percent in November 2025 compared to 5.9 percent in October and a contraction of 2.9 percent in January,” CBK said in a statement on Tuesday.
“This mainly reflects improved demand for credit in line with the declining lending interest rates.”
CBK can cut its benchmark rate further if both inflation and exchange rate stability holds.
