Cash in circulation dips Sh5.6 billion in March

Cash in circulation dropped by Sh5.56 billion in March as Kenyan households and businesses held back on spending in an environment fraught with uncertainties and thin investment opportunities.

Data by the Central Bank of Kenya(CBK) showed that the amount of cash circulating in people’s pockets and big business declined to Sh225.81 billion in March from Sh231.37 billion in February. The amount was however 13.9 per cent higher compared to March 2020.

Movement of cash in the form of notes and coins is an indicator of the country’s economic activity as it is the most widely used medium of payment for goods and services. It represents monetary assets in their most liquid form and is mostly held in bulk by individuals in homes and big businesses such as petrol stations, supermarkets, hardware stores and other big shops.

Analysts linked the decline in the amount of circulating cash to lower consumer spending and monetary policy activities including reduced government supply, mop up activities and higher auctions through the Treasury bonds and bills.

“Government was not disbursing money during the month but was instead mopping up the local currency aggressively from the market,” AIB-AXYS Africa debts and equity senior associate Kenneth Minjire said.

“Consumer spending has remained constrained with the pandemic as people spend less and businesses hold back on investment.”

The amount of money circulating outside the banking system was recorded at Sh226.72 billion in January, despite higher mop up activities to clear up to Sh82.33 billion through the short-term repurchase agreements (repo).

In March, CBK mopped up Sh47.92 billion via the repo market, highest after January.

Tough economic times tend to increase the need for cash in hand and in turn a rise of currency in circulation.