The Central Bank of Kenya Governor Dr Patrick Njoroge today held an online press briefing following the Monetary Policy Committee meeting on 29th July. The MPC retained the benchmark rate at 7 percent for the third straight month.
Dr Njoroge said that data indicates uncertainty and paints a bleak outlook for the global economy despite gradual reopening. Things remain unsettled and uneven as countries are retracting on their reopening schedules due to the resurgence of coronavirus cases.
In the local economy, diaspora remittances improved in June to hit $288.5 million which was an increase from the $258 million recorded in May. The June remittance inflows were the second-highest all-time remittances received in a month, contrary to CBK’s expectation of a decline in inflows. The bank has revised the projections for current account deficit at 5.1 percent of GDP which is a narrowing from June’s projection of 5.8 percent. The revision was informed by the changes in exports, remittances, and maintenance in oil imports.
According to the Central Bank Governor, usable forex reserves are adequate and will cover short term shocks and volatility in the exchange rate. Njoroge reiterated that the Kenya shilling exchange rate is market-determined and the bank’s intervention is meant to iron out volatility and maintain stability. Since April, the onset of COVID19 restriction, the Kenyan shilling has depreciated 2.4 percent against the US dollar. Cumulatively the Kenyan currency has depreciated by 6.3 percent against the US dollar from January to date.
Agriculture sector has been doing well despite the locust invasion that threatened Kenya’s food security. Tea has been strong in terms of production and exports. CBK expects tea volumes to hit 489,000 metric tonnes in 2020 compared to 459,000 metric tonnes in 2019, having grown by 5.7 percent in Q2. Cane production and deliveries have been higher in 2020 between February and May boosted by favorable weather and increased acreage.
Fresh vegetables and fruits for exports between January through June 2020 have been higher than the corresponding months last year. Actually, in June 2020 it was 78 percent higher than where it was in June of the previous year.
The flower sector has benefited from easing of restrictions and is recovering from the dip witnessed in April. In terms of the values of exports, January to June 2020 we exported $258 million worth of flowers compared to $318 million in a similar period in 2019. Between July 1 and 19, the volume of cut flowers was 80 percent of the volume in July 2019. The orders of cut flowers are almost back to normal levels with some industry players quoting 95 percent.
Crop production looks much more favorable in 2020 with the bank expecting a 7.7 percent growth in maize production to 42.9 million bags of maize in 2020 from 39.8 million bags last year. Bean production is forecast to grow in 2020 by 26 percent, potato production 14.2 percent boosted by favorable weather conditions. Njoroge said that worries about locusts are muted due to advanced crop cycle.
Cement production was strong between January to June this year. Electricity consumption also increased driven by domestic consumers but in terms of large consumers, the consumption levels are much lower than in 2019.
The Market Perception Survey revealed a return in the level of optimism about the economic outlook and return of economic activity in the near term. 60 percent of Hotels and restaurants interviewed indicated they would be open after international travel resumes on August 1. In terms of hotel occupancy, the accommodation was 44% in January, 51% in February, 24% in March, plummetting in April to June averaging 2%. The average forward booking was 2% in July, increasing to 7% in August, 17% in September, and 18% in October.
Exports grew by 1.7 percent in the first half of 2020 boosted by high tea volumes and recovery in cut flowers. The resumption of international flights starting in August is expected to boost cargo space and rationalize freight costs.
There is a lot of liquidity in the banking system, driven partly through the lowering of the cash reserve ratio. The governor said that they have provided stability in the yield curve by providing instruments with different maturities for investors with different appetites. Also lengthening the time to maturity, for bonds from 6.1 years in June 2018 to 7.8 years to date. The ratio of treasury bonds to treasury bills is now 29:71.