CBK revises 2019 growth expectations down from 6%


CBK revises 2019 growth expectations down from 6%
An Aerial view of Nairobi City/PHOTO/COURTESY

In Summary

  • Growth in the first half of the year peaked at a lesser 5.6 percent from 6.4 percent over a similar period in 2018 as the economy took a hit from the late on set of the long-rains season which damned productivity in agriculture and agro-processing
  • The slump in the year’s economic growth is further reflected by the monthly published Purchasing Managers Index (PMI) by Stanbic bank which showed output expectations for the year at their lowest in October
  • The reserve bank however maintains optimism for the recovery of the Kenyan economy from its current slump guided by hope for greater private sector credit growth from the recent repeal of interest rate caps

The Central Bank of Kenya (CBK) has revised its economic growth expectations for 2019 to 5.9 percent from an original 6 percent anchoring the trim on lower output expectations.

The lowered expectations follows the reserve’s bank market survey conducted in October whose findings placed current economic output in the negative.

“The output gap came in a negative 0.9 percent for 2019 against the potential to show the economy can grow at a much faster rate” noted CBK Governor Patrick Njoroge.

Growth in the first half of the year peaked at a lesser 5.6 percent from 6.4 percent over a similar period in 2018 as the economy took a hit from the late on set of the long-rains season which damned productivity in agriculture and agro-processing.

Further to the economic slump during the year has been the partial stay of interest rate caps and the locked supplier funds by government which when combined stifled private sector credit growth and general liquidity in the economy.

As such, private sector credit remained below its five year average for most of the year in spite of a lift in the second half to 6.6 percent at the end of September.

The slump in the year’s economic growth is further reflected by the monthly published Purchasing Managers Index (PMI) by Stanbic bank which showed output expectations for the year at their lowest in October.

CBK’s economic growth projection matches up to that made by the World Bank Group at the end of October and further aligns to the synchronized drag witnessed by the majority of economies around the world.

The reserve bank however maintains optimism for the recovery of the Kenyan economy from its current slump guided by hope for greater private sector credit growth from the recent repeal of interest rate caps which serves to unlock working capital for small and medium enterprises (SMEs).

According to the bank’s latest market survey on forward economic prospects, players in the private sector have upheld optimism for growth at a high 83 percent attributing the solid expectations to improved weather conditions and the expected increase on lending to small businesses following the rate cap repeal.

Nevertheless, the optimism is contained by concerns on the delay in the clearance of pending bills, reduced demand for some products and a slowdown in global growth.

On Monday, the CBK’s Monetary Policy Committee voted to cut the base lending rate to 8.5 percent from 9 percent in the first adjustment in 15 months with a view to prop further private sector credit recovery.

The CBK expects the continued fiscal consolidation by the State to provide more room for accommodative policy going forward even as players in the reserve banks re-learns the effects of policy interventions.

“With the fiscal now less accommodative, we can be more accommodative on monetary. The handbrake has been disengaged and so the car is in a much better position,” CBK Governor Patrick Njoroge said.

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Story By Kepha Muiruri
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