The economy, according to the Central Bank of Kenya closed the year stable despite an increase in inflation and the uncertainties created by the results of last year’s US elections as well as the Brexit referendum.
CBK Governor Dr Patrick Njoroge said this last December after a meeting of the Monetary Policy Committee, adding that the rise in inflation had been caused by changes in prices of food items.
The inflation rate had increased by 0.2% from 6.3% in September 2016 to 6.5% in October. However, he said, the increase was still within the target range of the government which is between 2.5% to 7.5%.
On the other hand, the foreign exchange market also remained stable despite the uncertainties that arose after the US elections last year and the increase in demand for foreign currencies by the corporates to pay off dividends.
The stability was greatly promoted by lower petroleum prices, lower import of machinery and resilient Diaspora remittances, which saw the current account deficit reduce. This went well with the government’s target of making it 5.5% of the G.D.P.
As a result the CBK was able to keep the central bank rate constant despite the chances of an increase in the fed rate.
“Given the prevailing domestic and global economic uncertainties, and the need for more conclusive information on these developments, the MPC decided to retain the central bank rate at 10%,” the Governor said. However, since the cap on interest rates became law, the approval on loan requests has dwindled even though there has been a rise in loan applications.
Banks had warned that if the law was passed, they would be forced to tighten their lending thus leaving a lot of borrowers stranded when it came to accessing credit. The governor said that the loan approvals stood at 4.7% and that the reason for the low number of approvals was based on the fact that banks were realigning their business models in order to be able to make profits. “Slowdown in credit growth is not related to the interest rate cap law,” he added.
Credit to the private sector also stabilized, growing 4.6%, showing the bottoming out of the slowdown which had been persistent since December 2015. This slow growth has been attributed to structural issues of banks especially the rising rate of bad loans rather than monetary policies.
Commenting on the state of banks that were put in receivership, the Governor said Chase Bank was going back to its old self with a rise of over 3000 new depositors as of November since it opened again and raised hopes of the bank coming out of receivership by first quarter of 2017.