27 November 2009

Nairobi — Kenya's economic growth is still depressed but signs of recovery are starting to emerge, the country's top economic advisory organ has said. The Monetary Policy Committee, which advises the Central Bank of Kenya on how to manage the economy, noted that credit risk is easing increasing stability in the banking sector.

The MPC chairman and CBK governor, Prof Njuguna Ndung'u, said the amount of credit available on the market has been growing a demonstration that the economy is slowly showing signs of growth.

"The moment you see credit availability increasing, then the economy is recovering," the governor said at a press briefing to explain the committee's decision to cut the key central bank rate by 75 basis points to 7 per cent early this week.

Already, some key economic barometers are showing positive signs of picking up. For instance, tourist numbers are growing, and tea output and cement production are also on the increase. "All these indicators presaged a confident growth environment for the future," Prof Ndung'u said.

Stress tests on commercial banks indicated gross non-performing loans had declined, while the ratio of net non-performing loans to total loans had also fallen. Prof Ndung'u said there is need to support the economy by providing a conducive environment for growth.

Upward trend

He said tax receipts for the third quarter had been on an upward trend since the first three months of the year and showed there was no threat of a domestic financing constraint. The country's economy grew by 7.1 per cent in 2007, but the global financial crisis, post-election violence and drought brought down the figure to 1.7 per cent in last year.

With the new reduced central bank rate (CBR) and low inflation figure, the governor anticipates that banks will respond by cutting their charges and lending rates. "You as the customer of a bank, have a weapon - the CBR and lower inflation rate, now to use to bargain for loan interest rates. We have 45 banks; it is up to you to negotiate. It is willing seller willing buyer market," he said.

Average lending rates have remained above 14 per cent over the last year but have cooled off in recent months from a June peak of 15.09 per cent to the current rate of about 14.74. Inflation slowed to 6.6 per cent in October from 6.7 per cent in September, according to a new methodology introduced by the Kenya Bureau of Statistics last month. Under the old method, inflation eased to 17.5 per cent from 17.9.

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