International Monetary Fund
Monetary Policy Committee

Kenya’s Banking Sector Very Stable, Real GDP Grew 5.7% in Q1 2018 – CBK

During a meeting on July 30, 2018, the Monetary Policy Committee observed that the banking remained stable with average commercial banks’ liquidity standing at 48 per cent and capital adequacy ratios standing at 18 percent in June 2018.

In addition, the gross of non-performing loans (NPLs) dropped from 12.4 per cent in April this year to 12 per cent in June. This was because of improved collection efforts in various sectors such as building and construction, transportation and communication, and tourism.

In the first quarter of 2018, real GDP grew 5.7 per cent compared to 4.8 per cent in the first quarter of 2017. Improved agricultural activity caused the strong economic recovery thanks to better weather conditions than last year. The strong economic activity was also attributed to the comeback of the manufacturing sector, and the resilient performance of the services sector.

According to the MPC,  “Growth in 2018 is expected to be strong, supported by continued recovery in agriculture, a resilient services sector, alignment of Government spending to the Big 4 priority sectors, and the stable macroeconomic environment.”

In July, the inflation rate was 4.35% compared to 4.28 in June, indicating increase in energy prices while Non-food-non-fuel (NFNF) inflation remained below five per cent showing that “demand-driven inflationary pressures are muted.”

MPC states: “Month-on-month overall inflation remained within the target range in May and June 2018,

largely due to lower food prices. […] Overall inflation is expected to remain within the target range mainly due to expectations of lower food prices reflecting favorable weather conditions.”

The Central Bank of Kenya’s (CBK) foreign exchange reserves remain high and are offering a buffer against short-term shocks in the foreign exchange market.

The CBK governor Dr Njoroge recently said Kenya does not the International Monetary Fund’s credit facility since the country is well protected against capital outflows.

According to the governor, the level of foreign reserves stood at Sh891.4 billion (equivalent to 5.92 months of import cover earlier this month), compared to Sh709.5 billion (equivalent to 4.73 months of import cover at the start of this year.)

The MPC also observed that private sector credit growth increased by 4.3 per cent in the 12 months to June 2018 in contrast to 2.8 per cent in April this year. The MPC also reduced the central bank rate from 9.5 per cent to 9 per cent.

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