CBK on standby should new Covid-19 rules overwhelm businesses

CBK Governor Patrick Njoroge (PHOTO: FILE)

NAIROBI, KENYA: The Central Bank of Kenya is on standby and ready to offer a remedy to businesses should new containment measures announced by President Uhuru Kenyatta prove to be too much.

In a post-Monetary Policy Committee (MPC) briefing on Tuesday, Central Bank Governor Patrick Njoroge noted that things are not looking bad at the moment but should the new measures prove otherwise, remedies such as the loan restructuring could be brought back.

President Uhuru Kenyatta last week announced new stringent containment measures with far-reaching consequences on individuals and businesses to help check the spread of the Corona virus now in its third wave.

The new measures include a partial lockdown of Nairobi, Machakos, Kajiado, Kiambu and Nakuru counties.
Unlike last year when similar measures were announced, the president did not highlight any economic remedy to help workers and businesses that will be affected by the guidelines.

Some of the measures put in place last year which have since been scrapped included tax relief measures that saw taxpayers pay less in Pay as you earn (PAYE), corporate income tax and Valued Added Tax (VAT).

Additionally, there were cash transfers to the elderly and some select urban households. Both national and county governments also paid pending bills and tax refunds.

On the monetary side, the Central Bank of Kenya (CBK) reduced its benchmark lending rate from 8.2 per cent to seven per cent, signalling cheap loans to the private sector. The Cash Reserve Ratio (CRR), or the fraction of money that banks have to leave with the financial regulator, was reduced to 4.5 per cent from 5.5 per cent.

The CBK also struck an agreement with banks that would see lenders allow borrowers distressed by the pandemic to reschedule their loans by between six and 12 months. The borrowers would not be charged for the restructuring.

Transferring sums of Sh1,000 and below from one mobile wallet to another was also free. Banks were not to charge any fees for the transfer of money between a bank account and a mobile money account.

Commenting while resetting the benchmark lending rate on Monday, CBK noted that the economy is not badly off noting that the package of policy measures implemented over the last year have protected the economy from substantial decline, and supported the most vulnerable citizens.

“Never say never, we are watching how the new measures are rolling out and MPC is on standby to offer remedy should the new rules prove unbearable,” said Njoroge.

CBK noted growth in private sector credit increasing to 9.7 per cent in the 12 months to February 2021, reflecting a recovery in demand with improved economic activity.

It also observed a strong credit growth in manufacturing (15.8 per cent), transport and communications (19.0 per cent), agriculture (13.4 per cent), real estate (8.8 per cent) and consumer durables (20.3 per cent).

Exports of goods have remained strong, growing by 1.2 per cent in the 12 months to February 2021compared to a similar period in 2020.

Receipts from tea and horticulture exports rose by 8.1percent and 3.4 per cent respectively, in the 12 months to February 2021 compared to a similar period in 2020, mainly reflecting increased demand from the key international markets.

Imports of goods declined by 11.8 per cent in the 12 months to February 2021 compared to a similar period in 2020, mainly reflecting lower imports of oil products due to relatively low international oil prices. Receipts from services exports remained subdued, reflecting weaknesses in international travel and transport.

Remittances remained strong at USD260.3 million in February 2021, and at USD3,155 million were11.4 per cent higher in the 12 months to February 2021 compared to a similar period in 2020.

The current account deficit is projected at 5.2 per cent of GDP in 2021, from an estimate of 4.8 per cent of GDP in 2020, reflecting an expected pickup in imports of intermediate goods.

Exports are projected to improve due to the vaccination efforts globally which are expected to ease COVID-19 related restrictions and lead to a pickup in demand. Kenya’s new trade arrangement with the UK is a welcome development to support trade.