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Kenya on Track to post Covid Economic Recovery

Kenyan economic indicators are point to a relatively strong recovery in the first quarter of 2021, Central Bank of Kenya (CBK) says.

This is being supported by strong performance of agriculture, construction, information and communication, real estate, finance and insurance sectors.

According to the Central  Banks Monetary Policy Committee (MPC) meeting held today, the enhanced COVID- 19 containment measures implemented in five counties between March 26 and May 1, are expected to have had a moderate impact on output, as businesses in most sectors continued to operate.

“As a result, the economy is expected to rebound in 2021, also supported by improvement in the services sectors including education and the wholesale and retail trade, recovery in manufacturing, and stronger global demand”, Central Bank Governor  Dr.Patrick Njoroge who is the also the MPC chairman said in a statement.

Inflation according to the MPC remains well anchored with Month-on-month overall inflation standing at 5.8 percent in April compared to 5.9 percent in March.

“The inflation rate is expected to remain within the target range in the near term, supported by lower food prices and muted demand pressures, despite the recent increase in fuel prices”, Dr. Njoroge said.

Exports of goods have also remained strong, growing by 5.5 percent in the first 4 months of 2021 compared to a similar period in 2020.

Significantly, the Governor noted receipts from exports of horticulture and manufactured goods rose by 27.7 percent and 33.9 percent respectively, in the first 4 months of 2021 compared to a similar period in 2020.

Nevertheless, he added that receipts from tea exports declined by 5.6 per cent, reflecting the impact of accelerated purchases in 2020.

Imports of goods, however also increased by 15.2 per cent in the first 4 months of 2021 compared to a similar period in 2020, largely as a result of improvements in imports of intermediate goods.

“Receipts from services exports remained subdued, mainly due to weaknesses in international travel and transport. Remittances were strong at USD299.3 million in April 2021, and were 23.3 per cent higher in the first 4 months of 2021 compared to a similar period in 2020”, Dr. Njoroge said.

The current account deficit is estimated at 5.2 per cent of GDP in the 12 months to April, and is projected to remain at the same level in 2021.

Remittances were strong at USD299.3 million in April 2021, and were 23.3 per cent higher in the first 4 months of 2021 compared to a similar period in 2020.

The CBK foreign exchange reserves, which currently stand at USD7,447 million  in 4.55 months of import cover) continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market while the banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios.

The ratio of gross non-performing loans (NPLs) to gross loans stood at 14.2 per cent in April compared to 14.5 per cent in February and this repayments  and recoveries were noted in the transport and communication, real estate, tourism, restaurants and hotels and agriculture

According to MPC, three  surveys were conducted ahead of the meeting namely the Private Sector Market Perceptions Survey, the CEOs Survey, and Survey of Hotels.

“All the surveys revealed general optimism about economic growth prospects in 2021, largely attributed to the rollout of vaccines, gradual resumption to normalcy with easing of containment measures, favorable weather conditions, prospects for improved exports to the EAC region, and expected increase in demand for credit by the private sector”, MPC noted. However, respondents in the survey according to MPC were concerned about continued uncertainties over the pandemic, and the increased cost of inputs though the survey of hotels indicated some recovery from the decline witnessed in April, following the containment measures announced on March 26 and lifted on May 1.

Despite all this, the Committee noted that inflation expectations remained well anchored within the target range, and the economy continued to operate below its potential level.

The MPC has concluded that the current accommodative monetary policy stance remains appropriate, and therefore the Central Bank Rate (CBR) will be retained at 7. per cent.

The MPC will further closely monitor the impact of the policy measures, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary.

Overall, the global economic recovery continues to strengthen albeit highly uncertain due to the resurgence of infections but largely supported by gradual re-opening of economies, relaxation of COVID-19 restrictions particularly in the major economies, ongoing deployment of vaccines, and strong policy measures.

By Wangari Ndirangu

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