The Central Bank of Kenya’s top think tank, the Monetary Policy Committee has lowered the policy rate once again to 7 per cent, in a space of a month, the lowest level in 9 years. This is as the CBK eases monetary controls to boost credit levels in an already slowing economy.
This is the fourth consecutive time the Monetary Policy Committee (MPC) is tweaking this Central Bank Rate(CBK), a signal for commercial banks to ease their hold on credit to customers.
In its April meeting held on Wednesday, the MPC lowered the CBR to 7% from 7.25% and the Cash Reserve Ratio (CRR), actions that continue to transmit throughout the economy.
“As a result of the reduction in March, 43.5% of funds released to the banking sector has been utilized with tourism, real estate, trade and the agricultural sectors being the main beneficiaries,” said Dr Patrick Njoroge, CBK Governor and Chairman of MPC.
CBK figures indicate that as per March 18th, 2020, loans amounting to KSh 81.7 Billion have been restructured as banks respond to requests from firms in the tourism business, restaurants and hotels (31%), Building and construction( 17%), Real estate (17.2%) and trade (12.4%).
Fiscal measures by the Government to contain the pandemic will result in what CBK estimates as a fiscal impulse of 2 per cent of GDP in the 2019/20 financial year. In light of the effects of COVID-19, CBK projects economic growth rate to decline sharply to about 2.3%.
A special MPC Private Sector Market Perception Survey in April, targeting hotels and commercial banks, indicates that virtually all hotel bookings for the second quarter of 2020 were cancelled. This was due to pandemic related travel restrictions.
Massive layoffs have also been noted in the hotel industry due to closures of several joints. CBK said lower oil import prices will offset the projected reduction in diaspora remittances. COVID-19 is expected to hit hard horticulture exports and receipts from tourism and transport.
Analysis by the CBK shows that the flower industry, which is on high season between March and April, are on the list of sectors that will be hardest hit. The ease of lockdowns in Europe as well as maintainance of cargo space by KQ and other airlines plying Nairobi route, offers some reprieve for the flower industry.
MPC insists that the banking sector remains liquid and stable with the ratio of non-performing loans to gross loans standing a 12.5% in March compared to 12.7% in February, 2020.
Private sector credit grew by 8.9% in the last 12 months, with manufacturing, building and cvonstruction, trade, transport and communication and individuals being the biggest creditors.
The Monetary Policy Committee expects inflation to remain within the target range of 2-7% despite disruptions occassioned by the pandemic as favourable weather continues. The Committee has decided to reconvene within a month, ready to take additional measures as it monitors impact of its latests monetary policy adjustments.