Kenya Cuts Rates as Gold Buffers and Debt Planning Carry the Credibility Load

By The COAST Reporter

Email, thecoastnewspaper@gmail.com

EBC Financial Group views the Central Bank of Kenya’s (CBK) latest easing step as a test of whether Kenya can lower domestic funding costs without reopening the country’s familiar pressure points: food inflation, FX confidence, and refinancing risk.

The policy rate was reduced to 8.75% from 9.00%, with inflation at 4.4% in January 2026 versus 4.5% in December 2025, but the more consequential signal is how Kenya is stitching easing to buffers, including planned gold purchases for reserve diversification and a renewed focus on liability management into the end-June fiscal window.

“Kenya’s latest policy step is best read in context, not in isolation,” said David Barrett, chief executive officer, EBC Financial Group (UK) Ltd. “With inflation still shaped by food and energy dynamics, and financing conditions influenced by global liquidity, the credibility of easing improves when it is accompanied by clear buffers such as reserves strategy and proactive maturity management.”

What Changed: The Cut Mattered, but the Control Around the Cut Mattered More

Beyond the 25 basis points (bps) reduction, the CBK narrowed the policy corridor to ±50 bps from ±75 bps, a practical move aimed at keeping money market conditions closer to policy intent and reducing day-to-day rate noise. Short-end pricing already points in that direction.

As of February 11, 2026, Kenya Shilling Overnight Interbank Average (KESONIA) was 8.8098%, close to the 8.75% policy rate, while the 91-day T-bill was 7.630% as of February 9, 2026, signalling that the short end is trading below policy.

The constraint is visible too. The lending rate was 14.82% in December 2025, which means the real question is not whether policy can ease, but whether risk premia compress enough for borrowing costs to follow meaningfully.

Market Significance: The “Buffers” Story is Trying to Reduce Three Macro Frictions at Once

Kenya’s buffers narrative is trying to solve a transmission problem first. Policy can ease and overnight conditions can follow, but the wider economy only feels relief if risk premia compress.

The data already shows momentum, with private sector credit growth at 6.4% in January 2026 from 5.9% in December 2025, a clear reversal from -2.9% in January 2025, yet average lending rates were still 14.82% in December 2025, which signals that credit pricing remains dominated by perceived risk, not the policy rate alone.

Second, the same story is designed to steady FX expectations while easing continues. Reserves cited at roughly $12.46bn, or about 5.4 months of import cover, are being positioned as an active shock absorber, and the signalling value rises when reserve diversification becomes explicit.

Gold is not a substitute for liquidity, but even a gradual move towards gold can communicate that buffers are being managed deliberately, which can matter in an import-reliant economy where currency confidence feeds quickly into inflation and risk pricing.

Finally, the buffers package is also aimed at refinancing optics before they become a market event.

By flagging possible Eurobond activity and broader liability management into the end-June 2026 fiscal window, the intent is to smooth maturities and reduce the chance that one redemption window tightens conditions across the curve.

That matters because Kenya’s own debt strategy places the present value of public debt at 65.3% of GDP at end-2025, above the 55% benchmark, which keeps the risk premium sensitive to how credibly maturities and funding are managed.

Why Kenya Should Care: Headline Inflation is Calm, but the Inflation Mix is Not

The easing case rests on inflation being in range, but the composition shows why the drought backdrop remains decisive.

Core inflation was 2.2%, while non-core inflation was 10.3%, making food and energy the swing variables that can quickly compress policy room.

At the same time, the drought story is not distant from Nairobi. Recent reporting shows drought impacts spreading beyond traditionally arid areas, affecting pastoral livelihoods and local prices, with rainfall expectations still uncertain.

The Kenya Meteorological Department’s January outlook also pointed to mainly sunny and dry conditions across most parts of the country.

Risk Frame: Drought and Food Inflation Surprise

The near-term risk is a drought-linked food inflation surprise that forces a faster repricing of the easing path. The second risk is execution: reserve diversification and liability management only stabilise expectations if they remain transparent and consistent into the April 2026 policy checkpoint and through the end-June 2026 fiscal window.

“Periods where policy, buffers and climate risks move at the same time tend to compress decision windows,” Barrett added. “In that environment, robust market education helps traders interpret the drivers behind price moves and risk, rather than reacting to headlines alone.”

Gold (XAU/USD) remains a key reference point when reserve diversification and global funding conditions converge.