How weather could shape Kenya’s inflation & economic growth outlook
The Central Bank of Kenya (CBK) is closely monitoring weather patterns and their potential impact on food prices as it maintains a cautious outlook on inflation and economic growth for the rest of the year.
The Monetary Policy Committee (MPC) on Monday retained the Central Bank Rate (CBR) at 8.75 per cent, saying inflation remains within the target range despite continued pressure from food prices and uncertainty in the global economy.
Speaking during a post-MPC press briefing on Wednesday, CBK Governor Kamau Thugge said the bank had factored the potential effects of adverse weather conditions into its economic projections.
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The concern comes as Kenya approaches the October-December period, when heavy rains could affect agricultural production, food prices and economic activity across several sectors.
“We have projected the net effect of El Nino and ongoing dryness on inflation. We expect it to remain within a target range,” Thugge told journalists during the briefing.
Why CBK is watching the weather closely
Kenya’s annual inflation stood at 6.5 per cent in July, rising marginally from 6.4 per cent in June. The CBK said inflation nonetheless remained within its target range, helped partly by lower energy prices that eased some pressure on households and businesses.
Core inflation remained relatively stable at 3.2 per cent in July compared with 3.1 per cent in June, while non-core inflation eased slightly to 15 per cent from 15.1 per cent.
Food prices, however, remain a major concern for policymakers, with Irish potatoes, tomatoes, kale, cabbages and onions among commodities recording elevated prices.
The CBK expects inflation to remain within its target range in the near term, supported by monetary policy measures, government interventions, relatively stable food prices and a stable exchange rate.
Weather conditions could nevertheless complicate that outlook. The Kenya Meteorological Service has estimated an 81 per cent probability of a strong El Nino this year, while government assessments have placed the probability of its effects continuing into early next year at 97 per cent.
Thugge said the uncertainty had pushed the CBK to adopt a conservative outlook for economic growth in the fourth quarter.
Agriculture remains particularly exposed because excessive rainfall can damage crops, disrupt harvesting and transportation, while flooding can also affect businesses and infrastructure.
At the same time, favourable rainfall could deliver the opposite outcome by improving agricultural production, supporting food supplies and easing prices.
The CBK is therefore watching not only the possibility of weather-related disruptions but also the potential for stronger economic activity if the rains prove beneficial.
Growth outlook remains cautious
Kenya’s economy expanded by 5.3 per cent in the first quarter of 2026, compared with 4.9 per cent during a similar period last year.
Despite the stronger first-quarter performance, the CBK has maintained a cautious outlook for the full year, projecting economic growth at 4.9 per cent in 2026 before accelerating to 5.3 per cent in 2027.
Thugge, however, said the forecast could be exceeded if the rains produce a positive net impact on agriculture.
“Potentially, we could have a much higher growth than the 4.9 if it turns out that the net impact of the El Nino rains would be positive,” he said.
The cautious approach reflects the difficulty of determining the overall economic effect of extreme weather. While sufficient rainfall can boost farm output, excessive rains can disrupt production, transport, trade and other economic activities.
The CBK is also balancing inflation risks against the need to maintain conditions that support economic expansion.
The MPC’s decision to retain the CBR at 8.75 per cent comes as the central bank assesses whether current monetary conditions are appropriate for keeping inflation under control while supporting credit and private-sector activity.
Private-sector credit growth remained strong at 10.2 per cent in July, indicating continued demand for financing across the economy.
Average commercial bank lending rates also eased slightly, falling to 14.3 per cent in July from 14.4 per cent in June.
The improvement in lending conditions could support investment and household spending, although elevated borrowing costs remain a consideration for businesses seeking to expand.
Food prices will remain an important part of the inflation equation because changes in the cost of basic commodities can quickly affect household budgets and overall price pressures.
The CBK’s weather assessment therefore adds an important dimension to its inflation outlook. A strong rainy season could improve agricultural supply and potentially moderate food prices, while flooding or crop losses could intensify inflationary pressures.
The central bank is consequently preparing for both possibilities as it enters the final months of the year.
The MPC’s decision to maintain the CBR also signals that policymakers believe the current level of monetary tightening provides an appropriate balance for now, while leaving room to respond if inflation or growth conditions change.
The outlook will depend on how weather conditions evolve, the performance of agriculture, movements in food and energy prices, the exchange rate and developments in the global economy.
