(NAIROBI, KENYA) – The Central Bank of Kenya expects inflation to peak lower than previously projected. The revision comes amid anticipation that the conflict involving the United States, Israel and Iran will be resolved soon.
The central bank projects inflation will peak at 6.8 percent in January 2027 before easing in subsequent months. That compares with its June projection of 7.2 percent in February 2027.
“Overall inflation is expected to remain within the target range in the near term, assuming a de-escalation of the conflict in the Middle East,” Central Bank of Kenya Governor Kamau Thugge said on Wednesday.
Kenya’s inflation edged up to 6.5 percent in July from 6.4 percent in June. The rise was driven by higher transport costs.
The central bank expects inflation to remain within its target band of 2.5 to 7.5 percent. That assumes a near term de-escalation of the Middle East conflict, which has pushed up domestic petroleum prices.
The bank has modelled a worst case scenario in which prolonged conflict pushes crude prices above $110 per barrel. That is equal to KES 14,232 or £86 at current exchange rates. At that price, Dr Thugge said inflation could reach eight percent.
Conversely, inflation would cool faster if crude prices fell to $70 per barrel. That is equal to KES 9,057 or £55. The baseline scenario assumes $90 per barrel, which is KES 11,644 or £71.
The central bank noted that international oil prices fell sharply after the first ceasefire deal between Iran and the United States. That suggests a similar outcome if another agreement is reached.
Higher oil prices have also widened Kenya’s import bill and current account deficit. The deficit reached three percent of GDP in the 12 months to June 2026, up from 1.9 percent in a similar period last year.
The increase was attributed to a wider trade deficit, lower remittances and reduced export receipts.
The deficit is expected to be fully financed by inflows into financial and capital accounts. Those inflows include foreign direct and portfolio investments, resulting in an overall balance of payments surplus.
The central bank on Tuesday retained its Central Bank Rate at 8.75 percent for the third consecutive Monetary Policy Committee meeting. It said the current stance remains appropriate to anchor inflation expectations and maintain exchange rate stability.