Nairobi, Kenya | 10 June 2026: Kenya’s Central Bank has held its benchmark lending rate steady at 8.75 per cent for the second consecutive time, as the Monetary Policy Committee (MPC) navigates rising inflation triggered by the ongoing conflict between the United States, Israel, and Iran — a geopolitical crisis that has disrupted global oil supply chains and pushed fuel prices sharply higher across the region.
For the construction sector, the decision delivers a degree of short-term relief.
With the Central Bank Rate (CBR) unchanged, commercial banks are unlikely to revise lending rates upward in the near term, preserving access to project financing at current costs.
Average commercial bank lending rates have already fallen significantly — from 17.2 per cent in November 2024 to 14.5 per cent in May 2026 — reflecting the cumulative effect of earlier easing cycles. That downward trajectory, however modest, has helped reactivate credit appetite in the sector.
Average commercial bank lending rates have dropped from 17.2% to 14.5% since November 2024 — a meaningful shift for contractors relying on credit to bridge project cash flows.
The MPC’s decision to hold was not without complications. Inflation climbed to 6.7 per cent in May from 5.6 per cent in April, driven primarily by higher fuel and cooking gas prices.
Non-core inflation — which captures energy and food — surged to 16 per cent from 13.4 per cent over the same period, a direct consequence of supply chain disruptions linked to the closure of the Strait of Hormuz, through which approximately one-third of the world’s oil is transported.
Fuel Costs Remain the Dominant Operational Threat
Despite state interventions — including a fuel VAT reduction to 8 per cent and pump price stabilisation subsidies — costs remain elevated.
In Nairobi, petrol is now priced at Sh214.25 per litre, diesel at Sh232.86 per litre, and kerosene at Sh191.38 per litre as of the latest pricing cycle.
For construction firms, diesel is the critical input. Every piece of heavy equipment — from excavators and bulldozers to concrete mixers and tipper trucks — runs on it.
At Sh232.86 per litre, fuel is adding material cost to earthworks, haulage, materials delivery, and site operations in ways that cannot be fully absorbed by existing project budgets.
Contractors tendering on long-cycle infrastructure projects face particular exposure, as fuel cost escalations are rarely adequately priced into fixed-rate contracts awarded months earlier.
Transport and logistics costs have followed fuel prices upward. Core inflation — which excludes food and energy — also ticked higher, reaching 3.2 per cent in May from 2.8 per cent, with transport identified as a key driver.
This feeds through to the cost of imported construction materials, including steel, cement inputs, glass, and specialist finishes, where freight and clearance costs form a meaningful share of landed price.
Growth Forecast Cut — But Construction Outperforms
The MPC revised Kenya’s economic growth forecast for 2026 downward to 4.9 per cent from an earlier projection of 5.3 per cent, citing global uncertainty stemming from the Middle East conflict and broader trade policy disruptions.
The economy expanded by 4.6 per cent in 2025, slightly below the 4.7 per cent recorded in 2024.
Importantly, the committee noted that industrial activity — and specifically construction — recorded stronger performance during the review period, even as agriculture and services showed relative weakness.
This positions construction as one of the more resilient segments of the Kenyan economy at a time of external shocks, supported by continued government infrastructure spending, a stable Kenya shilling, and improving credit growth to the private sector.
Private sector credit grew to 9.3 per cent in May from 7.1 per cent in April, with construction listed explicitly among the sectors registering robust growth.
The ratio of non-performing loans across the banking sector also declined to 15.3 per cent from 17.6 per cent in August 2024, suggesting that borrowers — including those in real estate and infrastructure finance — are managing debt obligations with greater discipline than a year ago.
Construction was among the sectors registering robust credit growth in May — a signal that project activity and developer confidence remain intact despite the global headwinds.
What This Means for Contractors and Developers
The net picture for Kenya’s construction sector is one of manageable stability under elevated pressure.
Borrowing costs are not rising, credit is flowing, and construction activity appears resilient.
These are meaningful positives for project developers, equipment financiers, and subcontractors relying on steady pipeline activity.
The offsetting risks are real, however. Fuel-driven cost inflation is compressing margins on active sites.
The global growth slowdown — world output is now projected at 3.1 per cent in 2026, down from 3.4 per cent in 2025 — could dampen appetite for commercial real estate investment and foreign-funded infrastructure projects.
Respondents to CBK’s CEO and market perception surveys also flagged weak consumer demand and the high cost of doing business as near-term risks, factors that weigh particularly on speculative residential and mixed-use development.
The MPC has indicated it will continue monitoring global oil market developments and their pass-through to domestic inflation, with the next policy review scheduled for August 2026.
Should the Iran conflict persist or escalate beyond its currently assessed ‘transitory’ impact, further rate action — in either direction — remains on the table.
For the sector, the August meeting will be a critical checkpoint.
A sustained fuel price shock that pushes inflation above the 7.5 per cent upper bound of the government target range could force the CBK’s hand toward tightening, with direct consequences for borrowing costs across real estate, infrastructure, and equipment financing.
KEY FIGURES AT A GLANCE
| Indicator | Figure |
|---|---|
| Central Bank Rate (CBR) | 8.75% — held for 2nd consecutive meeting |
| Kenya inflation (May 2026) | 6.7% (up from 5.6% in April) |
| CBK inflation target band | 2.5% – 7.5% |
| Avg. commercial lending rate (May) | 14.5% (down from 17.2% in Nov 2024) |
| Nairobi petrol price | Sh214.25 per litre |
| Nairobi diesel price | Sh232.86 per litre |
| Private sector credit growth (May) | 9.3% (up from 7.1% in April) |
| Kenya GDP growth (2025 actual) | 4.6% |
| Kenya GDP growth forecast (2026) | 4.9% (revised down from 5.3%) |
| Non-performing loans ratio (May) | 15.3% (down from 17.6% in Aug 2024) |
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