Capital Markets

Cash in Kenyans’ pockets jumps to 19-month high

Money.

A Nairobi market trader counts money after a day’s sales. Money outside banks defies Covid-19 economic hardships to rise Sh223 billion in October from Sh194 billion in April. PHOTO | FILE | NATION MEDIA GROUP

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Summary

  • CBK data shows that cash outside banks rose to Sh223 billion in October from Sh217 billion in September and Sh194 in April.
  • 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 rise in cash under circulation defies the hard economic times created by the pandemic that has seen many Kenyans lose their jobs and close their businesses.

The amount of cash circulating outside the banking system and in people’s pockets hit a 19-month high in October, buoyed by more firms resuming operations after the easing of some restrictions imposed to stem the spread of Covid-19.

Central Bank of Kenya (CBK) data shows that cash outside banks rose to Sh223 billion in October from Sh217 billion in September and Sh194 in April — when Kenya imposed a coronavirus-induced partial lockdown that led to layoffs and pay cuts.

The jump in circulation came in a month when Kenya eased Covid-19 restrictions, reducing the nationwide nightly curfew by three hours to between 9 pm and 4 am and lifting lockdowns on Nairobi and Mombasa.

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.

Kenyan firms in October also stopped layoffs and raised the number of workers on their payroll 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.

“It shows that there was renewed commercial and general activity, as people were doing more things than the previous months. It is a good sign, but the recovery is a much longer process given where we have come from,” public policy analyst Robert Shaw said in reference to the jump in cash circulating outside banks.

Cash held by banks in their tills declined by Sh1.7 billion, from Sh50.4 billion in September, to Sh48.7 billion in October.

This means more liquid cash left the banking system to the pockets of individuals and businesses.

The rise in cash under circulation defies the hard economic times created by the pandemic that has seen many Kenyans lose their jobs and close their businesses.

But the findings of the Stanbic Bank Kenya’s Purchasing Managers Index (PMI) survey in October showed output and new orders at Kenyan private companies expanded at the fastest pace in the study’s history dating back to January 2014.

Panelists polled in the closely watched monthly survey said growth in production for the fourth month in a row, which spurred fresh hiring, was largely being driven by improved cash circulation amid re-opening of businesses and schools.

Corporate activity

The increased corporate activity was buoyed by more firms resuming operations and others increasing factory floor activities after the easing of some restrictions imposed to stem the spread of Covid-19.

About 1.72 million workers lost jobs in the three months to June when Kenya imposed coronavirus-induced lockdowns that led to layoffs and pay cuts as firms battled falling sales and losses.

The resumption in hiring is a major boost to jobseekers, especially the close to one million young people who graduate from various educational institutions every year.

“Rising output and order book volumes led companies to raise their staffing levels at the start of the fourth quarter, ending a seven-month sequence of job cuts. The rate of job creation was the strongest in 11 months,” analysts at Stanbic Bank and UK’s Markit wrote in the PMI report.

The overall headline PMI reading— a monthly measure of private sector activity such as output, new orders, employment and backlogs — came in at 59.1 in October compared with 56.3 a month earlier, marking a record in the survey’s history.

Readings above 50 denote growth while those below point to contraction in activity in private companies.

But the private sector activity rose modestly in November as new orders edged up, after a big rebound in October.

The PMI index dropped to 51.3 in November from the all-time high of 59.1 in October due to softer increases in activity and new orders.

Covid cases

Activity in the private sector has gathered momentum since Kenya started gradual re-opening of the economy in June, a turnaround from a steady contraction in the first six months of the year.

The Treasury expects Kenya’s economy to grow by 0.6 percent this year, from a previous forecast of more than two percent due to a worse than expected out-turn in the six months to June.

Kenya has reported 92,853 confirmed cases of the Covid-19 from 58,567 in November 5, reflecting a 58.5 percent rise. Fatalities have increased to 1,614 from 1,051 over the period.

But faced with an economy that shrank by 5.7 percent in the three months to June when business shut and people stayed at home, President Uhuru Kenyatta resisted the pressure to impose stiffer restrictions.