Central Bank Rate: The Central Bank of Kenya has retained its benchmark rate at 7%, signaling confidence in the prevailing monetary policy as the economy struggles to bounce back from a slowdown caused by Covid-19 pandemic.
The Monetary Policy Committee (MPC), which is tasked with guiding the CBK’s decisions, said after its meeting today, that the current accommodative monetary policy stance remains appropriate, left the Central Bank Rate (CBR) at 7.00%. The MPC said it will 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.”
“The Committee will meet again in July 2021, but remains ready to re-convene earlier if necessary,” says Dr Patrick Njoroge, the Central Bank of Kenya Governor and chairman of the Monetary Policy Committee.
The Monetary Policy Committee (MPC) met today, 26th May 2021, against a backdrop of the continuing global COVID-19 (coronavirus) pandemic, continued rollout of vaccination programmes, and other measures taken by authorities around the world to contain its spread and impact. It said the economy is performing below its potential.
Dr Njoroge said the MPC considered the implications and outcomes of the measures implemented to mitigate the adverse economic effects and financial disruptions from the pandemic.
Global Economic Recovery
The global economic recovery continues to strengthen, he said, largely supported by gradual reopening of economies, relaxation of COVID-19 restrictions particularly in the major economies, ongoing deployment of vaccines, and strong policy measures.
“Nevertheless, the outlook for global growth remains highly uncertain, due to the resurgence of infections and the reintroduction of containment measures, and the uneven pace of vaccinations across the globe,” he noted.
Kenya On a Rebound
Leading indicators for the Kenyan economy point to a relatively strong recovery in the first quarter of 2021, supported by strong performance of agriculture, construction, information and communication, real estate, and finance and insurance sectors. The enhanced COVID19 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.
Inflation Within Target
Inflation remains well anchored. Month-on-month overall inflation stood at 5.8% in April compared to 5.9% 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.
Three surveys were conducted ahead of the MPC meeting: 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, favourable weather conditions, prospects for improved exports to the EAC region, and expected increase in demand for credit by the private sector.
“However, respondents were concerned about continued uncertainties over the pandemic, and the increased cost of inputs,” Dr Njoroge said. “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.”
Exports Remain Strong
Exports of goods have remained strong, growing by 5.5% in the first 4 months of 2021 compared to a similar period in 2020. Significantly, receipts from exports of horticulture and manufactured goods rose by 27.7% and 33.9% respectively, in the first 4 months of 2021 compared to a similar period in 2020.
Nevertheless, receipts from tea exports declined by 5.6%, reflecting the impact of accelerated purchases in 2020. Imports of goods increased by 15.2% 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 $299.3 million in April 2021, and were 23.3% higher in the first 4 months of 2021 compared to a similar period in 2020.
Banking Sector Stable
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% in April compared to 14.5% in February. Repayments and recoveries were noted in the transport and communication, real estate, tourism, restaurants and hotels and agriculture sectors.
Growth in private sector credit remained resilient at 6.8% in the 12 months to April 2021, with significant loan repayments and recoveries in March and April. Strong credit growth was observed in the following sectors: transport and communications (13.3%), agriculture (10%), finance and insurance (7.6%), and consumer durables (19.3%).
The number of loan applications picked up in May, following a dip in April. Additionally, progress was noted with regard to lending under the Credit Guarantee Scheme that was operationalized in October 2020.