CBK cuts Kenya growth forecast to 5.3pc on Iran war disruption

 CBK’s Monetary Policy Committee cut its 2026 growth projection to 5.3 per cent from an earlier estimate of 5.5 per cent.  [File, Standard]

The Central Bank of Kenya (CBK) on Wednesday slashed its economic growth forecast for the country for 2026, warning that the escalating Middle East conflict is driving up oil import costs and destabilising supply chains. 

The downward revision marks a significant blow to President William Ruto’s administration just 18 months before a general election, threatening his cornerstone promises to create millions of jobs and lower the cost of living for struggling households. 

The CBK’s Monetary Policy Committee (MPC) cut its 2026 growth projection to 5.3 per cent from an earlier estimate of 5.5 per cent.  

“The conflict in the Middle East has disrupted global supply chains, leading to significantly higher energy prices and heightened risks to the global economic outlook,” the committee chairman, who is also CBK Governor, Kamau Thugge, said in a statement following its meeting. Despite these mounting risks, the MPC left its benchmark Central Bank Rate (CBR) unchanged at 8.75 per cent, adopting a “wait-and-see” approach to determine if higher energy costs will trigger “second-round effects” on the prices of other goods and services.

The CBK’s assessment comes as Kenyans across the country confront a wave of higher prices of consumer goods and fuel shortages, with long queues forming at petrol stations as oil marketers struggle to navigate the volatile international market. 

However, a glimmer of geopolitical relief emerged earlier on Wednesday as the United States and Iran announced a formal ceasefire, halting active hostilities and offering the first tangible hope for a permanent diplomatic solution. 

While global oil markets reacted with cautious optimism, CBK noted that the “elevated uncertainties” from the war have already left a deep mark on Kenya’s balance of payments. 

The MPC warned that the war has severely impacted the current account deficit, the gap between what Kenya earns from exports and what it spends on imports. That deficit is now projected to widen to 3.0 per cent of GDP from 2.2 per cent. 

This deterioration means the government will likely need to accelerate domestic borrowing or draw down foreign reserves to pay for more expensive fuel, a move that could exert fresh pressure on the shilling and reignite inflation. 

“The committee noted that international oil prices have risen sharply and remained volatile due to supply chain disruptions,” the MPC said.

“We project higher international oil prices, lower receipts from services, and slower growth in remittance inflows.”  

The regulator also revealed that the Kenyan banking sector is showing increasing signs of strain as the cost of doing business rises. Gross non-performing loans (NPLs) climbed to 15.6 per cent of total loans in March, up from 15.4 per cent in December. 

CBK noted that the deterioration was most concentrated in personal and household lending, trade, agriculture, and manufacturing sectors that form the backbone of the Kenyan economy. 

Rising defaults typically force banks to tighten lending standards, creating a dangerous feedback loop that makes it harder for businesses to access the credit needed to survive the slowdown. 

“The MPC assessed that there is a need to monitor any second-round effects of the recent increase in international oil prices on overall inflation,” the MPC statement noted.

While overall inflation remained within the target range at 4.4 per cent in March, the MPC warned that non-core inflation, which includes volatile food items, has already jumped to 10.8 per cent. 

While CBK maintains a healthy foreign exchange buffer of $13.35 billion, equivalent to 5.68 months of import cover, analysts warn that a prolonged deficit will steadily erode this protection.