CBK Retains Base Lending Rate at 7%. Plans Further Economic Intervention Measures

The Monetary Policy Committee (MPC) on Wednesday retained the base lending rate at 7.00% for the seventh month on the bounce since April 2020 citing efficacy of intervention measures rolled out by the monetary policy regulator following the outbreak of the COVID-19 pandemic.

In a post MPC statement, Committee Chairperson & CBK Governor Dr. Patrick Njoroge noted that the regulator is considering rolling out further economic intervention measures after being satisfied with the execution of the Economic Stimulus Program to cushion vulnerable citizens launched by President Uhuru Kenyatta in May 2020.

“Additional measures to strengthen the fiscal performance are under consideration,” noted Dr. Njoroge.

The Governor observed that leading indicators for the Kenyan economy point to a recovery particularly in the fourth quarter of 2020, from the disruptions earlier in the year.

“This recovery is supported largely by strong performance in the agriculture and construction sectors, resilient exports, and continued recovery in manufacturing and services,” said Dr. Njoroge.

According to the CBK Governor, it is against this performance and the favourable global outlook, the economy is expected to rebound strongly in 2021, supported by recovery in the services sectors particularly education, manufacturing, resilient agriculture and the ongoing policy support through the government’s economic recovery plan.

The January 2021 MPC Private Sector Market Perceptions Survey further revealed expectations of strong economic activity over the next two months, and greater optimism on the economic prospects in 2021.

“Respondents attributed the improvement largely to the reopening of all learning institutions, expectations of acquiring a COVID-19 vaccine, the implementation of the Economic Stimulus Programme by the Government, resumption of most businesses that had stalled due to the pandemic, and strong agricultural production. However, uncertainties were noted with regard to the increase in COVID-19 infections globally and emergence of new variants,” reads the report.

The Survey of hotels and flower farms by the Central Bank of Kenya (CBK) conducted between January 13 and 15, showed continued recovery from the disruptions in April and May.

In particular, 97 percent of the respondent hotels are now open, compared to 96 percent in November 2020 and 35 percent in April, with continued re-engagement of employees particularly during the festive season in December.

All respondent flower farms indicated that they are now operational, while
employment and export orders for flowers have improved and are now close to pre-COVID-19 levels.

As per Dr Njoroge, the CBK foreign exchange reserves, which currently stand at USD7,686 million (4.72 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 ratio of gross non-performing loans (NPLs) to gross loans stood at 14.1 percent in December compared to 13.6 percent in October. NPL increases were noted in the Transport and Communications, Trade, Real Estate and Agriculture sectors. The increases in NPLs were attributable to the subdued business environment, and banks continue to make provisions for the NPLs,” reads the statement.

Growth in private sector credit stood at 8.4 percent in the 12 months to December 2020, as demand recovered with the improved economic activity.

Strong credit growth was observed in: manufacturing (12.0 percent), transport and communications (13.6 percent), agriculture (15.3 percent), real estate (8.7 percent) and consumer durables (18.1 percent).

“The operationalisation of the Credit Guarantee Scheme for the vulnerable Micro Small and Medium sized Enterprises (MSMEs), will de-risk lending by commercial banks, and is critical to increasing credit to this sector,”the Governor further noted.

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