Inflation rates have shown signs of easing recently, bringing some optimism to economic forecasts for both Turkey and Kenya. The Central Bank of Kenya's latest report indicates core inflation has decreased to 2%, down from 2.2% in December 2024, which may allow for more significant rate cuts as the economy stabilizes.
This new benchmark seems promising for the Central Bank of Kenya (CBK) as it has already lowered the benchmark lending rate three consecutive times, with the last cut bringing it down to 11.25%. By excluding volatile elements such as food and fuel from the inflation calculations, policymakers at the CBK hope to provide clearer signals for commercial banks, prompting them to reduce their lending rates for homes and businesses.
Meanwhile, the Turkish government is aiming to reduce its inflation rate to around 20% by the end of the year. Vice President Cevdet Yılmaz stated, "We are trying to heal the wounds of the earthquake in 2023. Throughout all this process, we continue our fight against inflation, which we see as the most fundamental issue." With last year’s rate standing at 44%, the government’s projections are heavily dependent on the results of the upcoming inflation readings, which are expected shortly.
January's inflation figures are anticipated to show improvement, and discussions of the monetary policies employed by the Turkish central bank suggest they may maintain tight controls to support disinflation efforts. Fitch Ratings commented on the situation, affirming Turkey’s credit rating at "BB-" with stable outlooks, predicting reductions to the country’s policy rates if conditions allow.
The CBK's adjustments come against the backdrop of rising consumer prices, which saw overall inflation increase to 3.3% recently, up from 3.0% the previous month. Notably, food inflation rose by 6.1%, presenting challenges to households already struggling with increased school fees and transport costs. Although the high costs could weigh on consumer spending, the CBK's core focus remains within the acceptable range of 2.5% to 7.5%.
Both economic situations underline the delicate balance central banks must maintain to achieve stability amid external pressures. Yılmaz stressed the importance of positive real interest rates, stating, "Positive real interest rates, low current account deficits, and capital inflows will likely support the durability of the improvement..."
International reserves for Turkey have improved, with expectations for reserves to rise to $175 billion by 2026, counteracting previous concerns about the country’s fiscal health. The upcoming years are seen as pivotal, with the government aiming for single-digit inflation figures by 2026-2027 to restore confidence among investors and the public alike.
For Kenya, the monetary policy outlook seems to garner support from the banking sector, as the umbrella banking association has advocated for sharper reductions to signal market conditions. Despite the increase in food and fuel prices affecting inflation, the CBK's approach may lead to healthier credit conditions should these trends continue.
This newly separated core inflation data should enable clearer guidance for monetary authorities as they develop strategies to bolster economic recovery across sectors. The push for cheaper lending rates aligns with the underlying sentiment of encouraging growth amid rising economic uncertainties.
Both countries' central banks are noted for using varied methods to tackle inflation, from tightening policy to provide against external shocks to encouraging spending through reduced lending costs. Policymakers continue to monitor these indicators carefully, seeking approaches to normalize economic conditions.
With decreasing inflation rates heralding possible improvements for both regions, the efforts of their central banks remain firmly in focus as they navigate the complex pathways to recovery. Observers and analysts alike will watch closely to see how these measures play out for the economies of Turkey and Kenya.