NAIROBI, KENYA – The Reserve Bank of Australia (RBA) has signalled its intention to maintain its current interest rate, a move with significant implications for the global economic landscape that Kenya must navigate. Speaking in Sydney on Monday, 27 October 2025, RBA Governor Michele Bullock downplayed fears of a sharp rise in unemployment, prioritising the ongoing battle against persistent inflation.

This decision by a major G20 economy provides a crucial barometer for the direction of global monetary policy, suggesting that borrowing costs worldwide may remain elevated for longer, posing potential headwinds for emerging economies like Kenya.

Australia's Economic Dilemma

Governor Bullock's remarks followed the release of contradictory economic data for September 2025. The Australian Bureau of Statistics reported that the unemployment rate unexpectedly rose to 4.5%, its highest level since late 2021. Simultaneously, inflation has shown signs of persistence, with economists forecasting the September quarter's annual inflation rate to be around 3.0-3.1%. This places the RBA in a difficult position, balancing the need to support a cooling labour market without conceding ground on its 2-3% inflation target.

"There are still jobs being created, just not as many," Bullock stated, indicating the bank's belief that the labour market is returning to a more sustainable balance rather than heading for a collapse. Following her comments, financial markets drastically reduced the probability of an immediate rate cut, according to ASX RBA Rate Tracker data.

Implications for the Kenyan Economy

While seemingly distant, the RBA's policy stance has tangible ripple effects for Kenya. A 'higher-for-longer' interest rate environment in developed nations typically strengthens their currencies and can attract capital away from emerging markets. This can exert downward pressure on the Kenyan Shilling, potentially increasing the cost of imports and servicing foreign-denominated debt.

The Kenya-Australia trade relationship, though imbalanced, is significant. In 2024, two-way trade and investment were valued at over $1 billion, making Kenya Australia's second-largest trading partner in Africa. In July 2025, Australia exported goods worth approximately KSh 1.18 billion to Kenya, while Kenyan exports to Australia were valued at around KSh 252 million. A sustained strong Australian dollar could make Kenyan exports like coffee, tea, and horticultural products more competitive, but would simultaneously raise the price of key imports such as wheat and machinery, potentially fuelling domestic inflation.

A Tale of Two Central Banks

The RBA's challenge mirrors, yet differs from, the one facing the Central Bank of Kenya (CBK). Both institutions are tasked with maintaining price stability while fostering employment. However, their current policy paths diverge based on domestic conditions.

In its recent meetings, the CBK's Monetary Policy Committee (MPC) has taken an easing stance, cutting the Central Bank Rate (CBR) to 9.25% at its October 7, 2025 meeting. This was preceded by cuts in August and June, aimed at stimulating private sector credit growth and supporting economic activity. The CBK's actions are underpinned by inflation remaining within its target range of 2.5% to 7.5%. According to the Kenya National Bureau of Statistics (KNBS), year-on-year inflation stood at 4.6% in September 2025, a slight increase from 4.5% in August but well within the target band.

Meanwhile, Kenya's unemployment rate was 5.4% in 2024, down from 5.6% in 2023, though youth unemployment remains a significant challenge. The CBK's ability to continue its easing cycle may be constrained by the actions of central banks like the RBA. If major economies hold rates high, the CBK may face pressure to temper its rate cuts to prevent capital flight and protect the shilling.

Global Outlook

Governor Bullock's cautious stance is a clear signal that the global fight against inflation is not yet over. For Kenya, this underscores the importance of strengthening domestic economic resilience. The decisions made in Sydney are a reminder of the interconnectedness of the global financial system, where monetary policy in one corner of the world can create economic weather patterns felt strongly in another. As the CBK prepares for its next MPC meeting, it will undoubtedly be watching the actions of its international counterparts with keen interest.