Kenya’s Interest Rate Decision for January 2026: Central Bank Cuts Rate to 8.75%
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Kenya’s Central Bank delivered a 25 basis point cut in its policy rate for January 2026, setting the benchmark at 8.75%. This move, announced on February 10, 2026, follows a reduction to 9.00% in December 2025 and continues a dovish trend since mid-2025. The decision comes amid moderating inflation, a stabilizing shilling, and persistent concerns about sluggish private sector credit growth. The Sigmanomics database confirms this is the lowest rate since May 2025, when the policy rate stood at 9.75%.
Drivers this month
- Headline inflation eased to 5.8% in January 2026, down from 6.2% in December 2025.
- Private sector credit growth slowed to 7.1% year-on-year, below the 12-month average of 8.4%.
- External sector pressures abated, with the current account deficit narrowing to 4.3% of GDP.
Policy pulse
The 8.75% rate sits just above the midpoint of the Central Bank’s 7.5–9.0% inflation target band, signaling a cautious but supportive stance for economic activity. The move aligns with regional peers, as Uganda and Tanzania also eased rates in recent months.
Market lens
Immediate reaction: KES/USD weakened 0.4% in the first hour post-announcement, while 2-year government bond yields fell by 18 basis points. Equity markets posted modest gains, with the Nairobi All Share Index up 0.7% on the day.
Kenya’s macroeconomic landscape in January 2026 was shaped by a mix of easing inflation, fiscal consolidation, and external stability. The Sigmanomics database shows headline inflation at 5.8% (January), down from 6.2% (December) and well below the 12-month high of 7.4% (August 2025). Core inflation also moderated, reflecting lower food and fuel prices.
Drivers this month
- Food inflation fell to 6.1% from 7.0% in December, aided by improved harvests.
- Fuel prices declined 3.2% month-on-month, tracking global oil price softness.
- Government budget deficit narrowed to 5.1% of GDP, from 5.7% in December, as spending restraint took hold.
Policy pulse
Fiscal policy remains tight, with the Treasury targeting a deficit below 5% of GDP for FY2026. The Central Bank’s rate cut reflects confidence that inflation risks are receding, but authorities remain alert to potential external shocks, including commodity price swings and regional security risks.
Market lens
Kenya’s Eurobond yields declined by 22 basis points after the rate cut, while the KES traded in a narrow band against the USD. Foreign investor sentiment improved, as reflected in a $42 million net inflow to local equities in January.
Drivers this month
- Inflation’s drop below 6% provided room for easing.
- Improved current account and fiscal balances reduced macro vulnerability.
- Muted private sector credit growth signaled need for monetary stimulus.
Policy pulse
The rate cut brings policy closer to neutral, with real rates positive but narrowing. The Central Bank signaled a data-dependent approach, watching for any resurgence in inflation or capital outflows.
Market lens
Immediate reaction: KES/USD slipped 0.4% and 2-year bond yields dropped 18 bps within the first hour. The KES’s modest depreciation reflects expectations of further easing, while the bond rally signals investor confidence in the disinflation trend.
Looking ahead, Kenya’s monetary policy trajectory will hinge on inflation dynamics, fiscal discipline, and external shocks. The Sigmanomics database consensus expects rates to remain at 8.75% through Q2 2026, with a 60% probability of a hold, 25% chance of a further cut, and 15% risk of a reversal if inflation rebounds.
Bullish scenario (25% probability)
- Inflation falls below 5.5% by April 2026.
- Private sector credit growth rebounds above 9% y/y.
- Central Bank cuts rate to 8.50% by mid-2026.
Base case (60% probability)
- Inflation stabilizes near 6%.
- Policy rate held at 8.75% through Q2 2026.
- Fiscal consolidation continues, supporting macro stability.
Bearish scenario (15% probability)
- External shocks (oil price spike, regional tensions) push inflation above 7%.
- Central Bank pauses or reverses easing, raising rates back to 9.00%.
Risks and opportunities
Upside risks include stronger-than-expected global growth and improved agricultural output. Downside risks stem from commodity price volatility, fiscal slippage, and geopolitical tensions in East Africa.
The January 2026 rate cut to 8.75% underscores Kenya’s pivot toward growth support as inflation pressures ease. The Central Bank’s cautious optimism is grounded in improving macro fundamentals, but vigilance is warranted given external uncertainties. Financial markets have responded positively, but the outlook will depend on sustained fiscal discipline and global stability. The Sigmanomics database will remain a critical resource for tracking these evolving trends.
Key Markets Likely to React to Interest Rate Decision
Kenya’s interest rate decisions have a direct impact on local and regional financial markets. The following tradable symbols are closely correlated with the policy rate, reflecting shifts in yields, currency, and risk sentiment. Each symbol is selected from the Sigmanomics database’s stock, forex, and crypto market pages, ensuring broad asset class coverage.
- SCBK – Standard Chartered Bank Kenya: Sensitive to rate changes via loan margins and funding costs.
- EABL – East African Breweries: Consumer demand and borrowing costs are rate-dependent.
- KESUSD – Kenyan Shilling/US Dollar: Directly reflects monetary policy shifts and capital flows.
- USDKES – US Dollar/Kenyan Shilling: Inverse of KESUSD, tracks currency reaction to rate moves.
- BTCUSD – Bitcoin/US Dollar: Increasingly used as a hedge or speculative asset during local monetary shifts.
| Year | Policy Rate (%) | KESUSD (avg) |
|---|---|---|
| 2020 | 7.00 | 0.0092 |
| 2021 | 7.00 | 0.0090 |
| 2022 | 8.25 | 0.0086 |
| 2023 | 9.00 | 0.0081 |
| 2024 | 9.50 | 0.0077 |
| 2025 | 9.25 | 0.0075 |
| 2026 (Jan) | 8.75 | 0.0078 |
Since 2020, KESUSD has depreciated as rates rose, but the recent easing has stabilized the currency. The correlation underscores the importance of rate decisions for FX markets.
FAQ: Kenya’s Interest Rate Decision for January 2026
Q1: What prompted the Central Bank of Kenya to cut rates in January 2026?
A1: The rate cut was driven by easing inflation, improved fiscal and external balances, and sluggish private sector credit growth, as detailed in the Sigmanomics database.
Q2: How does the January 2026 rate compare to previous months?
A2: The 8.75% rate is down from 9.00% in December 2025 and 9.25% in October, marking a third consecutive cut and the lowest level since May 2025.
Q3: What are the main risks to the outlook after this rate decision?
A3: Upside risks include stronger growth and lower inflation, while downside risks stem from commodity price shocks, fiscal slippage, and regional instability.
Bottom line: Kenya’s January 2026 rate cut signals a pro-growth stance amid easing inflation, but vigilance is needed as external risks persist.
Updated 2/10/26
The January 2026 policy rate of 8.75% marks a third straight cut, down from 9.00% in December and 9.25% in October. The 12-month average stands at 9.25%, highlighting a clear downward trend since mid-2025. The Sigmanomics database records rates of 9.75% (June 2025), 9.50% (August), 9.25% (October), and 9.00% (December), culminating in the current 8.75%.
This sequence of cuts is the most aggressive easing cycle since 2020. The chart below illustrates the stepwise decline in the policy rate, with each move closely tracking inflation’s retreat and improved external balances. The current rate is now 100 basis points below its June 2025 peak.