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Wednesday, January 27, 2021

CBK Content With Economic Health, Retains Base Lending Rate at 7.00%

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Samuel Gitongahttp://www.businesstoday.co.ke
Samuel Gitonga is a senior reporter at BUSINESS TODAY. Email: [email protected]

For the seventh month on the trot, the Central Bank of Kenya (CBK) has locked the base lending rate at 7.00% citing the intended effect on the economy the measures that the regulator introduced in March are having.

In a Monetary Policy Committee (MPC) statement issued Thursday, CBK Governor Dr. Patrick Njoroge noted that leading indicators for the Kenyan economy point to a recovery in the second half of 2020, from the disruptions witnessed in the second quarter.

“Real GDP is estimated to have contracted by 0.4 percent in the first half, reflecting the adverse impact of the COVID-19 pandemic in the second quarter on the services sector, particularly education, transport and storage, and accommodation and restaurant services,” the MPC statement read.

According to the monetary policy regulator, total loans amounting to Ksh1.38 trillion equivalent to 46.5 percent of the total banking sector loan book of Ksh2.97 trillion had been restructured by the end of October, in line with the emergency measures announced by CBK on March 18 to provide relief to borrowers.

Of this, personal and household loans amounting to Ksh303.1 billion or 36.1 percent of the gross loans to this sector have had their repayment period extended.

For other sectors, a total of Ksh 1,076.9 billion had been restructured mainly to trade (18.7 percent), manufacturing (22.7 percent), real estate (14.5 percent), and agriculture (12.8 percent).

“These measures have continued to provide the intended relief to borrowers,” said Dr. Njoroge.

Of the Ksh35.2 billion that was released by the lowering of the Cash Reserve Ratio (CRR) in March, Ksh 32.6 billion (92.7 percent) has been used to support lending, especially to tourism, trade, and transport and communication, real estate, manufacturing, and agriculture sectors.

Prospects

A Survey of hotels and flower firms by the Central Bank of Kenya (CBK) conducted between November 10 and 12, showed steady recovery from the closures and scaling down of operations in April and May following the onset of the pandemic.

In particular, 96 percent of the respondent hotels are now open, compared to 89 percent in September, with increased re-engagement of employees.

An average bed occupancy of 23 percent was reported. All responding flower farms indicated that they are now operational, compared to 56 percent in April and May.

Employment and export orders for flowers have improved and are now close to pre-COVID-19 levels.

Respondents also indicated that orders for flower exports over the next four months are strong, with a risk of disruptions from a tightening of COVID-19 containment measures in key markets.

The November 2020 MPC Private Sector Market Perception Survey revealed improved expectations of economic activity in the next two months and improved optimism on economic prospects for the next twelve months.

Respondents attributed the improvement to the continued normalization of economic conditions with the lifting of COVID-19 restrictions, strong agricultural production, and Government focus on infrastructural projects.

Respondents were positive about the prospects for a COVID-19 vaccine, but uncertainties remain particularly with regard to the increase in COVID-19 infections.

Economic Health

Exports of goods have strengthened from the disruptions of COVID-19, growing by 2.8 percent in the period January to October 2020 compared to a similar period in 2019.

Receipts from tea exports rose by 13.2 percent during this period, largely reflecting increased output. Horticulture exports have rebounded, reflecting the normalisation of demand in the international market, and the availability of adequate cargo space.

Flower exports have also rebounded, with the volume in the period July to October 2020 having increased by 4.8 percent compared to a similar period in 2019.

Remittances remained strong at USD263.1 million in October 2020 compared to USD224.3 million in October 2019.

For the ten months to October 2020, remittances were higher by 9.0 percent compared to a similar period in 2019.

Nevertheless, receipts from services exports remained subdued, reflecting weaknesses in international travel and transport. The current account deficit is projected at about 5.1 percent of GDP in 2020 from 5.8 percent in 2019.

 The CBK foreign exchange reserves, which currently stand at USD7,952 million equivalent t 4.89 months of import cover, continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market.

“The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios,” the regulator said.

The ratio of gross non-performing loans (bad loans) to gross loans remained stable at 13.6 percent in October and August.

NPL increases were noted in the transport and communication, energy and water, tourism, restaurant and hotels, and real estate sectors, mainly due to the disruption of businesses.

The increases in NPLs were partially offset by repayments and recoveries in the trade, manufacturing, and building and construction sectors.

Growth in private sector credit stood at 7.7 percent in the 12 months to October.

“The MPC will continue to closely monitor the impact of the policy measures so far, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary. The Committee will meet again in January 2021, but remains ready to re-convene earlier if necessary,” the lender noted

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