Kenya halts nearly two years of easing rate cycle amid uncertainty over Iran war

…joins six African peers in pausing rate cuts

Kenya’s central bank held its benchmark interest rate at 8.75 percent on Wednesday, pausing an easing cycle that has run for nearly two years as global uncertainty linked to the Middle East conflict clouds the inflation outlook.

The decision by the Central Bank of Kenya (CBK) was in line with market expectations and follows calls by the Kenya Bankers Association to maintain the policy rate amid rising external risks.

At its second Monetary Policy Committee meeting of the year, Kamau Thugge, CBK governor said the hold reflects growing concerns over global supply disruptions and elevated energy prices.

“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,” he added.

The KBA had earlier urged the central bank to keep rates unchanged, citing risks to inflation and exchange rate stability from global volatility, including high oil prices and supply chain pressures.

The East African economy now joins Egypt, Ethiopia, South Africa, Morocco, Angola and Mozambique in pausing rate cuts, as renewed inflation risks—driven by geopolitical tensions and higher energy costs—complicate the policy outlook across the continent.

The escalation of tensions involving the United States, Israel and Iran since late February pushed global crude oil prices above $100 per barrel, heightening fears of prolonged supply disruptions. Particular focus has been on the Strait of Hormuz, a critical route for roughly a fifth of global oil supply, where tanker disruptions have amplified volatility in energy markets.

For African economies reliant on imported fuel, the impact has been swift. Rising pump prices are feeding into higher transport, food and production costs, eroding purchasing power and threatening to reverse recent disinflation gains.

A joint report by the African Union and the African Development Bank warns that if the conflict persists beyond six months, Africa’s GDP growth could decline by at least 0.2 percentage points this year.

In Kenya, the fallout is already visible. Private sector activity slipped to an eight-month low in March, with the latest Purchasing Managers’ Index from S&P Global falling to 47.7 from 50.4 in February—its first contraction since August.

Inflation also ticked higher for the first time in three months, according to data from the Kenya National Bureau of Statistics, driven by rising food and energy costs.

Food and non-alcoholic beverages rose 7.7 percent, transport costs increased 3.8 percent, while housing and utilities climbed 2.0 percent—categories that account for more than half of the consumer basket.

However, some relief emerged on Wednesday as global oil prices fell below $100 per barrel following a ceasefire announcement between the United States and Iran, easing immediate supply concerns.

Brent crude and US West Texas Intermediate (WTI) dropped by as much as 14–17 percent in early trading, settling in the low-to-mid $90 range as markets unwound the geopolitical risk premium built up during weeks of escalation.