Kenya’s central bank has retained its benchmark rate at 7 per cent for the third consecutive month. CBK says that the package of policy measures implemented since March were having the intended effect on the economy, and will be augmented by the implementation of measures in the FY2020/21.
In addition, the bank says that progress was noted on the implementation of the fiscal policy measures announced in the FY2020/21 Budget, including the KES56.6 billion Economic Stimulus Programme, to stimulate the economy and cushion vulnerable citizens and businesses from the adverse effects of the pandemic.
The Monetary policy committee (MPC) says the second half of the year remains highly uncertain due to the unpredictability of the severity and persistence of the COVID19 pandemic. The global economy risks reoccurrence of the sharp contraction witnessed in the first half due to recent resurgence of COVID19 infections in countries that had commenced reopening.
On the domestic front, the MPC lauds the 4.9 percent growth in real GDP in the first quarter of 2020. However, the committee says that severe disruptions occasioned by COVID19 containment measures have subdued the services sector particularly the hotels and restaurants and the education sector.
CBK recorded improved optimism from respondents to the MPC private sector market perception survey conducted in July who expected increased economic activity in the next two months due to the easing of restrictions on movement. Other factors that contributed to this optimism include the impact of the fiscal and monetary policy measures to cushion the economy from the effects of the pandemic, favourable weather conditions, continued payment of pending bills by the Government, and strong diaspora remittances.
Inflation remained within the target range averaging 4.6 per cent in June and 5.3 per cent in May. The first half of 2020 recorded a rebound in exports, growing by 1.7 per cent compared to a similar period in 2019. Tea exports increased by 18.4 per cent boosted by increased production while horticulture declined by 14.2 per cent, largely reflecting the sharp contraction in flower exports in April. CBK says that between July 1 and 19 2020 flowers exports were 80 per cent of volumes in July 2019 reflecting increasing demand from key export markets with easing of restrictions and increased cargo space.
On the other hand, diaspora remittance remained strong in June rising to USD288.5 million from USD258.2 million in May. CBK maintains that the current account deficit will average 5.1 percent in 2020.
CBK says that the operationalization of the Credit Guarantee Scheme for the vulnerable Micro Small and Medium sized Enterprises (MSMEs is critical to increasing credit to this sector and will help cushion firms from economic downturn.
CBK says the MPC will meet again in September 2020, but remains ready to reconvene earlier if necessary.