Cash outside banks represents the most liquid of monetary assets and is mostly held in bulk by individuals in homes and big businesses such as petrol stations, supermarkets, hardware stores and other big shops.
Surveys have shown that the economy has rebounded slightly since the third quarter, with Kenyan firms raising their workforce last month for the first time since February in a bid to meet rising demand for goods and services locally and abroad on relaxation of trade and travel curbs.
The value of cash circulating outside the banking system fell by a marginal Sh206 million to Sh217.6 billion in September, new data by the Central Bank of Kenya (CBK) shows, signaling a resumption of spending by consumers.
Cash outside banks represents the most liquid of monetary assets and is mostly held in bulk by individuals in homes and big businesses such as petrol stations, supermarkets, hardware stores and other big shops.
The slight drop in cash circulating outside the banking system could mean that people and businesses who had opted to keep cash in home safes amid the economic uncertainty on Covid-19 are gradually beginning to release the cash as the economy picks up after gradual lifting of lockdown restrictions.
Surveys have shown that the economy has rebounded slightly since the third quarter, with Kenyan firms raising their workforce last month for the first time since February in a bid to meet rising demand for goods and services locally and abroad on relaxation of trade and travel curbs.
The Stanbic Bank Kenya’s Purchasing Managers Index (PMI) survey for example shows that output and new orders in Kenyan private companies expanded at the fastest pace in the study’s history dating back to January 2014.
“Business confidence has been on the rise over the last couple of months, courtesy of easing domestic containment measures which has boosted demand, albeit from a low base from April/May,” Stanbic Bank head of Africa research Jibran Qureishi wrote in the PMI report.
The CBK data shows that cash in circulation, which also acts as an indicator of the prevailing economic times, defied fallout from the Covid-19 pandemic to climb to a 14-month high of Sh219 billion in July as the country eased the Covid-19 containment measures. It however dropped slightly to Sh217.8 billion in August. Demand deposits -cash available for withdrawal in banks - rose by 2 per cent to an all-time high of Sh1.37 trillion in September from Sh1.34 trillion in August, indicating that people were looking to have their cash within easy reach.
Cash in fixed deposits fell by 1 percent in September to Sh1.51 trillion being a second consecutive drop blamed on lower returns on deposits and savings at 6.6 percent and 4.1 percent respectively (the lowest level since December 2019), encouraging more liquid cash to leave the banking system to the pockets of individuals and businesses.
The low returns on savings acts as catalyst for people to save less and cash out on their savings and opt to hold their cash in assets with better returns.
Cash outside banks had fell to a five-year low of Sh157 billion in September 2019 as a result of the Sh1000 note demonetization exercise, but has been rising at a slow pace since the end of the exercise early October last.
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