Kenya central bank lowers 2026 growth forecast to 5.4%

The Central Bank of Kenya has revised its economic growth forecasts downward, reducing the 2026 projection to 5.4% from 5.6% and the 2025 forecast to 5.2% from 5.4%. This adjustment coincides with a 25-basis point cut in the benchmark lending rate to 9.75%, the sixth consecutive reduction, aimed at bolstering economic activity amid concerns about valuations in the stock market.

Analysis

The Central Bank of Kenya has revised its economic growth projections downwards, signaling a more cautious outlook. The 2026 growth forecast has been lowered to 5.4% from the 5.6% anticipated in April, and similarly, the 2025 forecast was reduced to 5.2% from 5.4%. Accompanying these adjustments, the Central Bank Rate was cut by 25 basis points to 9.75%, marking the sixth consecutive reduction. This latest cut, however, is notably smaller than the previous 75 basis point decrease, suggesting a potential moderation in the pace of monetary easing. The explicit aim of this continued dovish policy, as stated by Governor Kamau Thugge, is to provide further support to the Kenyan economy. The overall sentiment derived from these actions is moderately negative, reflecting the downgraded growth expectations, while the monetary policy stance remains dovish. These developments are classified under themes of Monetary Policy, Interest Rates & Yields, Economic Data, and Emerging Markets, with an anticipated moderate market impact.

Key Decisions for Investors

• Investors should factor in the Central Bank of Kenya's lowered economic growth forecasts for 2025 and 2026, which suggest increased headwinds for the Kenyan economy.
• The ongoing monetary easing, demonstrated by the 25 bps rate cut to 9.75%, signals continued support for economic activity, though the reduced magnitude of the cut compared to previous actions warrants attention as it may indicate a more cautious central bank stance or a maturing easing cycle.
• Monitor Kenyan economic data and future central bank communications closely to assess the impact of monetary policy on growth and to gauge potential shifts in policy direction.
• Evaluate exposures to Kenyan assets considering the interplay between accommodative monetary policy and a more subdued growth outlook.