The global Covid pandemic has affected the whole world in many different ways and economic impact is one of the biggest and most crucial. After the vaccine roll out the countries started opening their businesses and to give them the opportunity to get back to the normal conditions and as well as other countries, Kenya is among them.
According to the Central Bank of Kenya (CBK), Kenyan economic indicators show a relatively solid rebound in the first quarter of 2021. Agriculture, construction, information and communication, real estate, banking, and insurance industries have all performed well recently. In a statement, Central Bank Governor Dr. Patrick Njoroge, who is also the MPC chairman, said that as a result, the economy is expected to rebound in 2021, supported by improvement in the services sectors, including education and wholesale and retail trade, recovery and stronger global demand.
Despite the recent increase in gasoline prices, the inflation rate is projected to remain within the target range in the short term, supported by reduced food costs and subdued demand pressures. Good exports have also been robust, increasing by 5.5% in the first four months of 2021 over the same time in 2020. Significantly, revenue from horticulture and manufactured products exports increased by 17.7% and 33.9% respectively, in the first four months of 2021 compared to the same time in 2020, according to the Governor.
Nonetheless, he also negated that tea export revenue fell by 5.6% in 2020, showing the impact of faster purchasing. Imports of products, on the other hand, grew by 15.2% in the first four months of 2021 compared to the same time in 2020, owing to improvements in intermediate goods imports. Services exports receipts remained flat, owing to weakness in international travel and transportation. Remittances were robust in April 2021, at USD 299.3 million, and were up 23.3 percent in the first four months of 2021 compared to the same time in 2020. The current account deficit was forecast to be 5.2 % of GDP, and it is expected to stay at that level in 2021.
While the banking sector is trying to remain stable and resilient, the CBK continues to provide adequate cover and a buffer against short-term shocks in the forex. We have already seen from the past that the foreign exchange market explained and analyzed many different economic events, that had an impact on the global financial market, since its importance cannot be denied. In April, the ratio of gross non-performing loans to gross loans was 14.2 %, down from 14.5% in February, with repayments and recoveries in the transportation and communication, real estate, tourism, restaurants, and hotels, as well as agriculture sectors. The private sector market perceptions survey, the CEOs Survey, and the Survey of Hotels were all done before the meeting.
The rollout of vaccine, gradual resumption of normal standards with the easing of containment measures, favorable weather conditions, prospects for improved export to the EAC region, an expected increase in private sector credit demand all revealed a general optimistic future and growth in 2021. However, respondents in the study were concerned about prolonged pandemic uncertainty and rising input costs according to MPC, however, a poll of hotels showed some improvement from the fall seen in April following the containment measures introduced on March 26 and removed in May. Despite this, the committee noted that inflation expectations were solidly anchored within the target range and the economy continued to function at a lower level than its potential.
The MPC has determined that the present accommodating monetary policy stance is appropriate and the Central Bank Rate would be kept at 7%. The MPC will continue to closely evaluate the effects of the policy measures as well as global and local economic developments and will be prepared to take additional actions if warranted. Overall, the global economic recovery is strengthening, though at a slow pace due to the reappearance of infections, but it is being aided by the incremental reopening of economies, easing of COVID 19 limitations, particularly in big economies, continued vaccination deployment, and robust policy initiatives.
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