Market News

Amount of cash in circulation continue on downward trend

cash

Circulation of cash has declined. FILE PHOTO | NMG

Summary

  • The cash in circulation stood at Sh241.96 billion in February down from Sh265.87 billion last year.
  • This decline was an equivalent of nine per cent.
  • The amount of cash in circulation is often an indicator of economic activity and the expected demand for cash as projected by the apex bank.

The cash in circulation fell by Sh23.9 billion or nearly 10 percent in February compared to the same month last year, accelerating a trend also seen in the first month of the year.

The Central Bank of Kenya (CBK) data showed the cash in circulation stood at Sh241.96 billion in February down from Sh265.87 billion last year. This decline was an equivalent of nine per cent.

In January, the cash in circulation stood at Sh242.06 billion down from Sh262.38 billion at the same time last year — making a difference of Sh20.32 billion or a dip of 7.7 per cent.

George Bodo, an investment analyst, said the amount of cash in circulation is often an indicator of economic activity and the expected demand for cash as projected by the apex bank.

The CBK appears to have projected a lower demand for cash at the beginning of the year, even though it has not released any explanations on newest the data.

“The money in circulation indicates economic activity, so when it is expected to be higher the CBK releases money cash into the economy.

“It seems to have projected lower economic activity from the beginning of the year. Data for March and April should be even clearer [following the pandemic],” said Mr Bodo.

In August and September last year, there was a notable decline in the cash in circulation as the deadline for the removal of Sh1000 notes from circulation approached at a time economy was soft with growth in the domestic product falling to 5.4 percent compared to 6.3 percent in the previous year.

The money in circulation fell to Sh207.07 billion by the end of September which was also the deadline for conversion of the old Sh1,000 notes into the new notes. By the end of the exercise some Sh7.3 billion was never returned to the CBK.

At the time analysts also cited slow release of payments to suppliers by the national and county governments as contributing to low cash in circulation.