Sheila M'Mbijjewe on what the CBK is doing to cushion Kenyan economy from COVID-19 shocks

In response to the outbreak of the COVID-19 pandemic in Kenya, the Central Bank of Kenya has been proactive in implementing various measures to mitigate the economic and financial impact of the crisis. Sheila M'Mbijjewe, Deputy Governor of the Central Bank of Kenya, provided insights into the actions taken and their impact on the economy. From a monetary policy perspective, the central bank reduced the cash reserve ratio (CRR) by 1 percent and injected $340 million US dollars into the economy to boost liquidity in the banking sector. Additionally, funds from the demonetization of the 1000-shilling note were allocated to the national treasury to support the health sector. The central bank transitioned from bi-monthly to monthly meetings and reduced the central bank rate to 7 percent to stimulate economic activity. These measures have resulted in an average liquidity level of around 51 percent in the banking sector, ensuring sufficient funds for lending. The central bank also adopted a sympathetic approach to loan restructuring for borrowers affected by the pandemic, leading to a 9 percent growth in the lending book amounting to $2.3 billion. Despite uncertainties about the future, the central bank remains proactive in safeguarding the financial sector's stability. The increase in reserves and financial support from development partners have boosted confidence in the economy, with reserves currently covering about 5.8 months of imports. These measures have helped the Kenyan economy weather the challenges posed by the pandemic. As small and medium enterprises (SMEs) faced heightened risks during this period, the government provided financial support to vulnerable groups, including SMEs, and introduced a loan guarantee scheme to facilitate access to credit. Over 47,000 SME loans were restructured to assist businesses in navigating the economic downturn. The pandemic has underscored the importance of resilience in the financial sector, with a focus on monitoring non-performing loans and ensuring the banking sector's stability. Despite the pressures on the Kenyan shilling, which depreciated marginally due to increased demand post-lockdown, it remains relatively stable compared to other currencies. The deputy governor emphasized the need for continuous monitoring and adaptation to changing economic conditions. As countries grapple with rising debt levels, Kenya's debt situation, totaling $59 billion split between domestic and foreign debt, presents challenges amid reduced revenues and increased spending on health and social needs. While debt concerns persist globally, close coordination and proactive measures are essential to address economic vulnerabilities and foster recovery. The pandemic has highlighted the importance of financial sector preparedness and innovation, with digital solutions playing a crucial role in enhancing resilience and adaptability. The Central Bank of Kenya remains vigilant in addressing emerging challenges and steering the economy towards sustainable growth.