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Economy Gears on Recovery Path

The current monetary policy stance has remained appropriate and therefore the Central Bank Rate (CBR) will be retained at 7 percent.

The Monetary Policy Committee (MPC) of the Central Bank however says it will continue to closely monitor the impact of the policy measures so far, as well as developments in the global and domestic economy in readiness for taking additional measures if necessary.


Giving an assessment of the outcome of its policy measures deployed since March to mitigate the adverse economic effects and financial disruptions from the COVID 19 pandemic, Chairman of the MPC, also Central Bank Governor Dr Patrick Njoroge said that leading economic indicators for the Kenyan economy for the third quarter point to a strong recovery in economic activity from the disruptions witnessed in the second quarter of 2020.


This improvement and resilience, Dr Njoroge said is supported by agricultural production, increased activity in key sectors particularly services with the easing of COVID-19 restrictions, normalisation of exports, and Government interventions to mitigate the impact of the pandemic.


A survey on hotels by the Central Bank of Kenya (CBK) conducted between September 21 and 23, the CBK Governor said reported recovery from the COVID-19 disruptions that had led to closures in April and May with 89 percent of respondents now open compared to 35 percent in May.


Exports of goods, he added, remained robust despite the pandemic, growing by 0.8 percent from January to August 2020 compared to a similar period in 2019.


“Receipts from tea exports over this period rose by 17.1 percent with increased output. Horticulture exports remain strong, mainly reflecting the normalization of demand in the international market and availability of adequate cargo space,” he said.


Dr. Njoroge said that Flower exports for the period September 1 to 27 were 141.3 percent of the volume in September 2019.


Inflation remains well anchored, he added saying that month-on-month overall inflation has remained stable at 4.4 percent in August and July 2020, and is expected to remain within the target range in the near term supported by lower food prices, the impact of the reduction of VAT and muted demand pressures.


The banking sector  Njoroge said remains stable and resilient, with strong liquidity and capital adequacy ratios.


“The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.6 percent in August, compared to 13.1 percent in June,” he said adding that the NPL increases were noted in the real estate, personal and, transport and communication sectors, due to a subdued business environment.


Total loans amounting to Sh 1.12 trillion have also been restructured by the end of August, in line with the emergency measures announced by CBK on March 18 to provide relief to borrowers. He expounded that of these, personal/household loans amounting to Sh 271 billion have had their repayment period extended.


Of the Ksh 35.2 billion that was released by the lowering of the Cash Reserve Ratio (CRR) in March, Dr Njoroge said that Sh 32.4 billion which is 92 percent has been used to support lending, especially to the tourism, trade and transport and communication, real estate and manufacturing sectors.


“Strong growth in lending was observed in the manufacturing (13.1 percent), transport and communications (19.0 percent), trade (8.1 percent) and consumer durables (13.7 percent),” Njoroge said.


According to the Committee, the package of policy measures implemented since March were having the intended effect on the economy, and will be augmented by implementation of the fiscal measures in the FY 2020/21 Budget.


The global economic outlook for 2020 remains uncertain, largely due to the unpredictability of the COVID-19 pandemic. However, after the sharp contraction in the first half of 2020, there are signs of a gradual recovery in global economic activity in the second half reflected by the impact of the lifting of containment measures and effects of the fiscal and monetary policy interventions.


By Wangari Ndirangu


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