The amount of money in circulation dropped three percent in January compared to December 2020, attributed to increased spending on the reopening of schools and higher cost of living expenses.
Central Bank of Kenya (CBK) data shows that physical cash held outside banks and non-bank institutions fell by Sh6.95 billion in the month to Sh226.7 billion from Sh233.6 billion in December- when it was an all-time high.
The drop was the highest recorded month-on-month since September 2019, when it fell by 28.4 per cent to Sh157.7 billion due to the demonetisation process.
The amount of money in circulation dropped three percent in January compared to December 2020, attributed to increased spending on the reopening of schools and higher cost of living expenses.
Central Bank of Kenya (CBK) data shows that physical cash held outside banks and non-bank institutions fell by Sh6.95 billion in the month to Sh226.7 billion from Sh233.6 billion in December- when it was an all-time high.
The drop was the highest recorded month-on-month since September 2019, when it fell by 28.4 per cent to Sh157.7 billion due to the demonetisation process.
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.
The reopening of schools in January saw many Kenyans bank their cash into school fees accounts and pay for other related school expenses.
The drop in January was also attributed to the inflationary pressures tied to reversal of stimulus measures, including the cuts on income tax and value added tax, and an increase in fuel prices.
“The reopening of the education system increased the demand for money primarily for school fees and as well as associated sectors like transport and food, and this shows the significance of this sector in the economy,” said Ken Gichinga, chief economist at Mentoria Economics.
“The higher inflation also saw consumers spending more which reduces the money in pockets, plus not only did they see a drop in income but also increased spending.”
Since October last year, the country has been witnessing increased private sector activity with the reopening of businesses and improved cash flow in the economy.
CBK data also shows demand deposits in banks or money held in checking accounts dropped by Sh5.86 billion to Sh1.38 trillion.
Quasi-money in banks and non-banking financial institutions including such money held in money markets accounts and short-term deposits also dropped marginally by Sh9.3 billion to Sh1.52 trillion, reinforcing the need for easily liquidated money on the increased activity.
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