Inflation Rises in Kenya as Central Bank Cuts Lending Rate to 9.5%

By Mutunga Tobbias

The Common Pulse | September 2025

Kenya’s economy is once again under the spotlight as inflation edged upward in August 2025, driven primarily by rising food and transport costs. According to the latest data, year-on-year inflation increased to 4.5%, up from 4.1% in July 2025. This shift, though moderate, has prompted the Central Bank of Kenya (CBK) to respond with a notable monetary policy adjustment.

Central Bank of Kenya Lowers Lending Rate

In a move aimed at easing borrowing conditions and stimulating economic activity, the CBK reduced its benchmark lending rate to 9.50%. Despite the inflationary pressure, the rate remains within the country’s medium-term target band of 2.5%–7.5%.

The cut is intended to strike a balance between managing inflation expectations and supporting sectors struggling with high costs, especially households and small businesses hit hardest by fuel and transport hikes.

What’s Driving Inflation in September 2025?

The rise in inflation has been linked to:

Food prices: Erratic weather conditions, import dependency, and supply chain disruptions have pushed up the cost of staple foods like maize, wheat, and cooking oil.
Transport costs: Global fuel price volatility, coupled with new domestic levies, has led to higher bus fares, fuel pump prices, and freight charges.
Household pressures: Rising costs of essentials have reduced disposable income, affecting consumption patterns across urban and rural households.

Impact on Kenyans

For the average Kenyan, the inflation uptick means:

More expensive groceries as maize flour, sugar, and vegetables cost more.
Costlier transport, particularly for daily commuters in Nairobi and other urban centers.
Rising household budgets, forcing families to cut back on non-essential spending.

While the CBK’s decision to lower lending rates could ease credit access, experts caution that long-term solutions lie in strengthening local agricultural production, stabilizing fuel supplies, and addressing fiscal imbalances.

Economic Outlook

Despite the inflationary rise, Kenya’s economic fundamentals remain relatively stable. With inflation at 4.5%, the country is still operating well within its policy target range, suggesting that current challenges are manageable in the short term.

Analysts predict that the CBK’s pro-growth stance could boost private sector investment, but warn that external shocks, such as oil price surges or global supply chain disruptions, could still derail progress.

The rise in Kenya’s inflation to 4.5% in August 2025 reflects persistent challenges in food and transport costs. However, the Central Bank’s rate cut to 9.5% signals a determination to support growth while keeping inflation under control. The coming months will be critical as Kenya balances between taming rising costs and stimulating economic recovery.

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