Kenya’s Monetary Policy Committee convenes on June 9 at what is arguably the most uncomfortable juncture of Governor Kamau Thugge’s tenure. With headline inflation surging to 6.7% in May, up sharply from 5.6% in April and the highest reading since March 2024, the committee must decide whether to defend price stability or protect a private sector that is visibly deteriorating. Neither path is without pain.
The inflation picture has been almost entirely authored by the US-Israel war on Iran, which erupted on February 28 and effectively closed the Strait of Hormuz — a corridor through which roughly 20% of the world’s oil flows. The direct transmission into Kenya has been brutal. Diesel hit an all-time record of KES 242.92 per litre in the May EPRA pricing cycle, a 23.5% jump in a single month, while petrol rose 8.4%. Transport inflation consequently soared to 16.5% year-on-year, and with food and housing costs adding further pressure, the three divisions driving the May print together account for over 57% of the CPI basket. The monthly CPI gain of 1.6% was the sharpest since April 2022.
What complicates the MPC’s calculus considerably is the growth side of the equation. The Stanbic Bank Kenya PMI which is the timeliest measure of private sector health has now contracted for three consecutive months, falling to 46.6 in May from 49.4 in April. That reading is the deepest contraction since the post-protest disruptions of mid-2024, and it tells a consistent story: businesses are absorbing input costs they cannot fully pass on, consumer spending is retreating, and the credit recovery that ten consecutive CBK rate cuts painstakingly rebuilt is now at risk of stalling. This is the classic stagflation trap — rising prices and falling activity simultaneously and it is the hardest environment any central bank can find itself in.
The regional context adds further pressure. The South African Reserve Bank hiked its repo rate by 25 basis points to 7.00% on May 28, the first increase since 2023, citing the need to prevent inflation expectations from becoming entrenched. The SARB moved with inflation at just 4.0%. Kenya’s MPC meets with inflation 270 basis points higher. Cutting in that environment would be a credibility risk the CBK can ill afford, particularly with the shilling under pressure and Gulf remittances — Kenya’s largest source of foreign exchange — falling to five-month lows in April.
The base case remains a hold at 8.75%, but the probability of a pre-emptive 25 basis point hike has risen meaningfully and should not be dismissed. The MPC’s internal inflation forecast for June and July is the swing variable — if the model projects inflation approaching the 7.5% target ceiling without policy action, the committee may conclude that acting early, as the SARB did, is preferable to being forced into a more aggressive response later. Whatever the decision, the days of easy, consensus-driven rate cuts are firmly behind Kenya’s central bank.
