The Central Bank of Kenya (CBK) on Wednesday held its monetary policy meeting, where it maintained its benchmark lending rate at 8.75 percent amid jitters about the impact of global oil prices on inflation.

The retention of the benchmark rate at a second CBK meeting in a row summed up the underlying uncertainty that characterises the monetary policy environment.

CBK Governor Kamau Thugge fielded questions on how the apex bank is navigating a policy landscape fraught with risks of large, unprecedented shocks, such as high oil prices. He also touched on ‘house-keeping’ issues aimed at improving the sustaiability of the banking sector.

After how long might you consider the Iran war to be no longer transitory, warranting a tighter policy stance?

Like I have said before, our decisions on whether to tighten or even ease monetary policy are based on the data we receive during the Monetary Policy Committee (MPC) meetings.

So, it's very difficult to say at this stage what will happen. We'll have to wait and see developments. For instance, we have to wait and see what happens to food prices.

The surveys, certainly from the agricultural sector, suggest that food inflation may decelerate. It may be the case that these hostilities cease very quickly. I think at this point it's difficult to say, but we are keeping an eye on developments regarding oil prices and the second round (inflation) effects.

We will wait to see what will have happened to inflation by the next time we meet. It's on this basis that we will take action in the next meeting of the MPC.

Have disbursements from the World Bank's emergency financing window begun?

We are in discussions with the World Bank on the DPO (the development policy operations). We hope that the DPO will go to the executive board of the World Bank for approval shortly. Similarly, there haven't been any disbursements regarding the emergency financing. That has not started yet, but of course it's an ongoing discussion.

How do you see the Finance Bill, 2026 proposals affecting inflation in the near and medium term?

We don’t see much inflation coming from what has been proposed in the Finance Bill. So yes, we don't see an impact on inflation coming from the Finance Bill.

Is the adoption of risk-based pricing by commercial banks progressing as forecasted?

Since the risk-based credit pricing model came into place, we as the MPC haven't adjusted the Central Bank Rate (CBR), which has remained on pause for the last two meetings.

As such, it is difficult to tell you whether the new framework has had an impact on credit to the private sector, but having said that, I think the easing of monetary policy that we undertook before the pause has had a positive impact.

As an example, we've seen Treasury bill rates decline quite significantly.

We have also seen a decline in commercial bank lending rates from 17.2 percent to 14.5 percent at present. The intention of lowering the CBR was to stimulate credit to the private sector, and indeed, we have also seen that lending by banks to the private sector has grown from a contraction of 2.9 percent in January of 2025 to 9.3 percent in May 2026.

Once an action is taken either to tighten or to ease monetary policy under the new risk-based pricing model, the transmission is very effective because it will have an immediate impact on lending rates by commercial banks.

Several commercial banks are yet to meet the Sh3 billion minimum core capital requirement well after the December 2025 deadline. Has the CBK extended a grace period to these lenders to finish re-capitalisation exercises?

No, we haven't offered any grace periods for banks to meet the core capital requirement of Sh3 billion. Some of them are going to raise additional capital from their shareholders through rights issues, while we have had some indications that one bank (with government shareholding) is getting support from the National Treasury.

We now expect that the banks will also meet the capital requirement of Sh5 billion this year and are engaging all those banks that have less than Sh5 billion in core capital to see exactly how they are going to meet that requirement.

→ kmuiruri@ke.nationmedia.com

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