•Central Bank of Kenya Governor Patrick Njoroge, who heads the committee, noted that services exports declined by 20 per cent in the first half of 2020.
•Says policy measures adopted since March were having the intended effect on the economy, and will be augmented by measures in the 2020/21 budget.
The Monetary Policy Committee (MPC) has for the third time in a row retained the base lending rate at seven per cent, citing the impact of the Covid-19 pandemic on the economy.
Central Bank of Kenya Governor Patrick Njoroge, who heads the committee, Wednesday cited continuing effects of the Covid-19 pandemic on the economy.
Njoroge said that services and exports declined by 20 per cent in the first half of 2020 reflecting the weakness in tourism and air transportation.
Consequently, the current account deficit is projected at about 5.1 per cent of GDP in 2020.
Nevertheless, he affirmed the policy measures adopted since March were having the intended effect on the economy and will be augmented by implementation of the measures in the 2020/21 budget.
“Progress was noted on the implementation of the fiscal policy measures announced in the FY2020/21 Budget, including the Sh56.6 billion Economic Stimulus Programme, to stimulate the economy,” Njoroge said.
Respondents to the MPC Private Sector Market Perception Survey conducted in July 2020, indicated improvement in their optimism, and expectation of increased economic activity in the next two months particularly with the recent easing of movement restrictions.
Other factors that contributed to this optimism, according to CBK, include the impact of the fiscal and monetary policy measures to cushion the economy from the effects of the pandemic, favourable weather conditions, continued payment of pending bills by the Government, and strong diaspora remittances.
The MPC said inflation remains well anchored with month-on-month overall inflation having declined to 4.6 per cent in June from 5.3 per cent in May 2020, and is expected to remain within the target range in the near term.
“This is supported by lower food prices, the impact of the reduction of VAT and muted demand pressures,” Njoroge said.
He said the banking sector also remains stable and resilient, with strong liquidity and capital adequacy ratios.
The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.1 per cent in June, compared to 13.0 per cent in May.
NPL increases were noted in the manufacturing, trade and personal sectors, due to a subdued business environment.
Total loans amounting to Sh844.4 billion have been restructured (29 per cent of the total banking sector loan book of Sh2.9 trillion) by the end of June, in line with the emergency measures announced by CBK on March 18.
“The MPC concluded that the current accommodative monetary policy stance remains appropriate, and therefore decided to retain the Central Bank Rate (CBR) at 7.00 per cent,” Njoroge said.
The Central Bank Rate was cut from 7.25 per cent in April.
“The MPC will continue to closely monitor the impact of the policy measures so far, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary,” the governor said.
The Committee will meet again in September, but says it can re-convene earlier if necessary.