- The ongoing recovery of key economic sectors will ease pressure on the CBK to roll out additional policy support measures despite a 0.3 percent contraction last year.
- Normally, the regulator would look to roll out monetary easing measures to stimulate the economy after a contraction.
The ongoing recovery of key economic sectors will ease pressure on the Central Bank of Kenya (CBK) to roll out additional policy support measures despite a 0.3 percent contraction last year, analysts said.
Normally, the regulator would look to roll out monetary easing measures to stimulate the economy after a contraction.
However, economists say that general economic indicators such as corporate earnings, imports and exports and private sector sentiments are pointing upwards.
This is in contrast with the subdued economic environment last year, in which sectors such as hospitality and travel were significantly were eroded by Covid-19 control restrictions.
“Whereas this could warrant more policy support, it is also evident that the economy is gradually reverting to its pre-crisis levels. Economic recovery commenced in the final quarter of 2020 and by all accounts seems to have extended into 2021, albeit unevenly,” said economists at NCBA in a fixed income note.
“Leading indicators including the stock market, PMI, trade data, and corporate earnings underlines the general recovery assumptions. While the economy may still do with some fiscal intervention, we think that the evidence of recovery may hold back any intervention from the central bank, for now.”
Last year, some of the interventions included a cut on the base rate to seven percent from 8.25 percent at the beginning of 2020 and lowering the Cash Reserve Ratio (CRR) for commercial banks to 4.25 percent from 5.25 percent to free up liquidity for lending to the private sector.
The CBK also temporarily removed fees on mobile transfers of a value below Sh1,000, in addition to allowing banks to offer a moratorium on loan servicing to cushion borrowers whose livelihoods had been hit hard by the pandemic.
Further, concerns over the rising cost of living might preclude further easing measures. Inflation has been rising for four straight months, to hit an 18 month high of 6.57 percent in August, albeit on supply-side pressure from food and fuel.
Although core inflation remains low and stable at, the CBK will be keen to ensure that headline inflation remains within the upper preferred limit of 7.5 percent.