The value of cash circulating outside the banking system fell by Sh7.2 billion in August to Sh235.6 billion as Kenyans opted to have much of their money in savings.
The sharp drop now represents the biggest fall on a month-on-month basis since the demonetisation exercise in 2019.
Data by the Central Bank of Kenya (CBK) shows the metric — an indicator of the prevailing economic environment — had risen to an all-time high of Sh242.8 billion in July as schools reopened for the first term of the adjusted academic calendar.
The value of cash circulating outside the banking system fell by Sh7.2 billion in August to Sh235.6 billion as Kenyans opted to have much of their money in savings.
The sharp drop now represents the biggest fall on a month-on-month basis since the demonetisation exercise in 2019.
Data by the Central Bank of Kenya (CBK) shows the metric — an indicator of the prevailing economic environment — had risen to an all-time high of Sh242.8 billion in July as schools reopened for the first term of the adjusted academic calendar.
Despite the three percent drop in cash circulation, the average value of money in people’s pockets in the first eight months of this year has improved mainly on a recovering economy.
“As the economy gradually reopens and activities resume, more money is being generated. Depositors are, however, more prudent about saving and are setting aside this income as a buffer as the pandemic ensues,” said Genghis Capital analyst Melodie Ndanu.
The average value of circulating cash in the first eight months of this stands at Sh229.8 billion, a rise of 13.3 percent from Sh203.3 billion over the same period last year.
Improved consumption brought by increased income and removal of pay cuts, new hiring and easing of restrictions to combat the pandemic has been critical in helping the economy recover.
According to Kenya National Bureau of Statistics data, the unemployment rate by strict definition had fallen to 6.6 percent at the end of March this year from a record of 10.4 percent in June last year at the height of the Covid-19 pandemic.
Cash circulation fell to a low Sh194 billion in April last year as the country was going through its first wave of infections and struggled to go past the Sh220 billion mark until October.
With the unemployment rate hitting a record high of 10.4 percent in June, the pandemic battered many Kenyans, leaving them unable to pay rent, afford a decent meal or meet their daily needs.
“Because of the pandemic, most Kenyans with cash were continuously being forced to save or redirect their spending mainly because of the containment measures,” said Ken Gichinga, chief economist at Mentoria Economics, in an earlier interview with the Business Daily.
In its last Monetary Policy Committee meeting, the CBK remained optimistic of an economic recovery but cautioned it would be dependent on the distribution and uptake of vaccines.
“Leading indicators for the economy point to a strong GDP recovery in 2021, mainly supported by robust performance of construction, manufacturing, education, real estate, and transport and storage sectors” the Central Bank said.
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