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Kenya’s Central Bank maintains key repo rate at 7%
In what feels like a race against time, Kenya parliament's budgets appropriations committee approved the third supplementary budget on Friday for the financial year ending tomorrow, why so late and what are the implications of the latest changes? Churchill Ogutu, Head of Research at Genghis Capital joins CNBC Africa for more.
Mon, 29 Jun 2020 14:51:55 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- The decision to maintain the key repo rate at 7% reflects the cautious approach towards monetary policy in a high liquidity market where banks are reluctant to lend.
- The subdued appetite for new loans and loan restructurings indicate the challenges faced by businesses and individuals in accessing finance.
- The approval of the third supplementary budget with allocations for healthcare and infrastructure projects highlights the need for transparency and accountability in government spending.
In a last-minute rush, Kenya's Parliament's budgets appropriations committee approved the third supplementary budget for the financial year, just a day before it was set to end. The delayed approval has raised questions about the timing and implications of the latest changes in the country's financial landscape. To shed light on this matter, Churchill Ogutu, the Head of Research at Genghis Capital, joined CNBC Africa for an insightful discussion. Ogutu pointed out that the unexpected decision was not entirely surprising given the current market conditions. He highlighted the high liquidity in the market, as evidenced by the decreasing interbank rate and oversubscription in T-bills and T-bonds auctions. Despite the liquidity surplus, banks are hesitant to lend, leading to a lack of cash flow and liquidity in the market. This challenging environment has resulted in a significant number of loan restructurings by both individuals and corporate entities. As a result, there is a subdued appetite for new loans, with private sector credit growth seeing a decline. Against this backdrop, the decision by Kenya's Central Bank to maintain the key repo rate at 7% was well within expectations, as it does not provide an incentive for commercial banks to increase lending. Despite calls for increased liquidity to support small and medium enterprises, the current economic realities have dictated a more cautious approach. The lack of robust credit growth in the private sector further underscores the challenges facing businesses and individuals in accessing finance. Moving forward, as Kenya transitions into a new financial year, the Appropriations Committee has tabled recommendations for the third supplementary budget. The proposed changes amount to 11.3 billion shillings, with allocations towards healthcare and infrastructure projects. However, some expenditures, such as payments for social housing units and marine transport, have faced scrutiny and delay pending further review by parliamentary committees. The decision-making process around these allocations highlights the need for transparency and accountability in government spending. As the supplementary appropriation bill is set to be tabled in the National Assembly, all eyes will be on how these budget revisions will shape Kenya's economic landscape in the coming months.
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