Coronavirus Deflates Kenya’s Projected Economic Growth to 11-Year Low

The Central Bank on Monday slashed its base lending rate to 7.25% from 8.25% in a Monetary Policy Committee (MPC) meeting that also predicted that the country’s economic growth rate is expected to hit its lowest level since 2009 to 3.4%.

Going by CBK’s projection, at 3.4% Kenya’s economy will have grown by the lowest rate since 2009 when the country posted a measly 3.3% and 0.2% in 2008 when Post Election Violence (PEV) sent the country’s economy crashing as investors fled the country in droves.

Central Bank Governor Dr Patrick Njoroge attributed the dim outlook on reduced demand by Kenya’s main trading partners, disruptions of supply chains and slowed down domestic production.

As a result, CBK will pump Ksh35.2 billion as additional liquidity availed to banks to directly support borrowers distressed as a result of the outbreak of COVID-19 just days after releasing Ksh7.4 billion illicit cash mopped from the economy last year to help battle the outbreak.

The monetary policy regulator also plans to reduce the Cash Reserve Ratio (CRR) to 4.25% from 5.25%.

‘While the extent of the adverse effects of the pandemic on the Kenyan economy is still evolving, it is already evident that the impact may be severe,” said Dr Njoroge in the statement.

“Trade flows have been significantly disrupted, while the continued volatility in international financial markets will worsen the outlook. In a shift of stance, central banks in the major advanced economies are implementing accommodative monetary policy to stabilise the financial markets and support economic growth,” added the Governor.

CBK says it will ensure that the interbank market and liquidity management across the sector continue to function smoothly.

Current account deficit is projected at 4.0–4.6% of Gross Domestic Product (GDP) in 2020, but the outcome will depend on the duration and intensity of the pandemic, and its impact on exports particularly horticulture, transport and tourism services and imports.

According to Dr Njoroge, foreign exchange reserves, which currently stand at USD8,251 million (Ksh877 billion) an equivalent of 5.01 months of import cover, continue to provide ‘adequate cover’ and a buffer against short-term shocks in the foreign exchange market.

The ratio of gross non-performing loans (NPLs) to gross loans stood at 12.7% in February 2020 compared to 12.0% in December, mainly reflecting increases in NPLs in the manufacturing, energy and personal/household sectors.

Private sector credit grew by 7.7% in the 12 months to February 2020 observed mainly in manufacturing (10.4%), trade (9.5%), transport and communication (7.4%); and consumer durables (20.6%).

However, growth in private sector credit will likely moderate due to the expected weakening in economic activity in the key sectors affected by COVID-19.

The MPC will closely monitor the impact of this change to its policy stance, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary and will meet again next month where the country’s situation will be re-evaluated.

See Also>>> Was Kenya’s Economy Ready to Weather COVID-19 Scale Shock?

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