The CBK Monetary Policy Committee has retained the benchmark rate at 7 percent in its Tuesday sitting citing positive effects policy measures implemented since March were having on the economy.
The committee says leading indicators for the third quarter of the year point to a strong recovery in economic activity from the disruptions witnessed in the second quarter of 2020.
“This improvement and resilience are supported by agricultural production, increased activities in key sectors particularly the services with the easing of COVID-19 restrictions, normalization of exports and the Government interventions to minimize the impact of the pandemic,” the MPC indicated.
Even though analysts have backed the retention of the rate, a further cut is unlikely as the country looks jittery about a possible second wave of coronavirus.
Standard Bank Group Chief Economist Africa Jibran Qureshi notes, “I think it’s the right move. While underlying inflationary pressures remain muted, easing the policy stance further from here may not be that effective in spurring growth especially considering the amount of excess liquidity already in the inter-bank market,”
Month-on-month inflation remained stable at 4.4 percent on account of lower foods prices and a reduction in VAT.
On Monday, President Uhuru Kenyatta announced the retention of VAT at 14 percent until 1st January 2021 after it was slashed from 16 percent in April to cushion consumers against rising food prices in the wake of COVID-19 outbreak.
At least Kshs 35.2 billion shillings was released on the market with the lowering of the Cash Reserve Ratio to encourage lending during the health crisis.
In 12 months to August, the committee said private sector credit has remained resilient to stand at 8.3 percent as recovery offers increased demand for lending.
“The imminent operationalization of the Credit Guarantee Scheme for vulnerable MSMEs will de-risk lending by commercial banks, and is critical to increase credit to this sector,” CBK Governor Dr. Patrick Njoroge said.
According to the CBK, since the outbreak of the pandemic, banks have restructured loans amounting to Kshs 1.12 trillion which is equivalent to 38 percent of total loan book which stood at Kshs 2.9 trillion by end of August.
On the other hand, the ratio of gross non-performing loans has risen to 13.6 percent in August compared to 13.1 percent registered in June.
“NPL increases were noted in the real estate, personal, transport and communication sectors due to subdued business environment,” Dr. Njoroge said.
Personal loans accounted for the largest portion of loan restructure at Kshs 271 billion or 33 percent, trade 20.7 percent, manufacturing 20.2 percent, real estate 18.3 percent and agriculture 11.1 percent.