Expectations are high that the Monetary Policy Committee (MPC), a top think tank of the Central Bank of Kenya (CBK) will lower the Central Bank Rate (CBR). This is at its next meeting scheduled for Monday 23rd March, 2020.
A number of analysts and investment banks expect the committee to lower the policy rate with Nairobi based stockbroker Sterling Capital projecting a cut by between 25-50 basis points from the present 8.25 per cent.
MPC will be meeting against volatile and uncertain market conditions posed to Kenya and the Global economy by the COVID-19 pandemic.
The committee will be keen to deal with inflationary pressure and a rapidly weakening shilling, which on Friday fell to KSh 106.5100 against the US Dollar. This is few points shy off its lowest ever mark of 106.60/70, recorded in October 2011.
The shilling has weakened from around 100.93 as at end of February just before the Central Bank announced a move to buy US dollars in order to progressively increase its foreign exchange levels above normal levels. CBK noted the move would increase its preparedness to deal with the heightened global volatility and uncertainty.
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The Kenyan economy remains vulnerable due to close links with China and other source markets in Europe where the COVID19 has led to partial shutdowns in recent weeks. The turbulence in the global market means reduced exports to Kenya’s key export markets.
Already, the country’s flower industry has been hit hard with several flower farms having already suspended shipping of their flowers to several EU countries, even as the Dutch auction, which is the main market for Kenya’s flower exports has recorded a 50% drop in exports.
CBK Transfers Ksh 7.4 Billion to Government to help fight COVID19
The Central Bank of Kenya earned a windfall of KSh 7.4 Billion from the withdrawal of the KSh 1000, a process that was concluded in September last year. This amount has been transferred to the Government’s consolidated fund following approvals from the CBK Board. The transfer was executed by crediting Treasury’s deposit account at the CBK.
In a statement, CBK mentions that the demonetization exercise was triggered by the need to sanitize the monetary system from illegal financial flows and fake currency. The KSh 1,000 is the largest monetary unit that is used in most large transactions as well as individual households. At the close of the withdrawal exercise, there were indivuduals who were unable to exchange the old notes for newly printed and redesigned ones.
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