The economy has continued posting a strong performance with the Gross Domestic Product (GDP) data for the second quarter of 2022 indicating real GDP growth of 5.2 percent.
The performance reflects robust activity in transport and storage, wholesale and retail trade, information and communication, real estate, and financial and insurance.
Central Bank of Kenya (CBK) Governor Dr. Patrick Njoroge who is also chairman of the Monetary Policy Committee (MPC) said that the economy is expected to remain strong in the last quarter of 2022, supported by the services sector despite subdued performance in agriculture and weaker global growth.
Njoroge said that two of the surveys conducted ahead of the MPC meeting on November 23, 2022 that is the CEOs Survey and Market Perceptions Survey revealed sustained optimism about business activity and economic growth prospects for 2022 and 2023.
“The optimism was attributed to increased economic activity following the conclusion of the elections, opportunities for growth in sectors such as ICT, and the Government’s renewed focus on MSMEs,” said Njoroge.
“Nevertheless, respondents remained concerned about reduced consumer spending, domestic inflation, and subdued agricultural performance due to depressed rainfall, as well as increased global risks including inflation, recession, and the continued war in Ukraine,” he said.
Njoroge explained that the survey of the agriculture sector conducted in the first half of the month, revealed that prices of some key items moderated in November.
“Additionally, respondents expect output for most agricultural products to increase in the next harvest, on account of improved weather conditions and increased acreage,” said Njoroge.
He added that respondents identified transport costs due to high fuel prices, unpredictable weather conditions, and the cost of inputs such as seeds and fertilizers as major factors constraining agricultural production.
Njoroge said that goods exports have remained strong, growing by 13.9 percent in the 12 months to September 2022 compared to a similar period in 2021.
“Receipts from tea and manufactured goods exports increased by 15.9 percent and 26.0 percent respectively during the period. The increase in receipts from tea exports reflects improved prices attributed to demand from traditional markets,” said Njoroge.
According to the CBK Governor, the overall inflation increased to 9.6 percent in October 2022 from 9.2 percent in September, mainly due to food and fuel prices. Food inflation rose to 15.8 percent in October from 15.5 percent in September, largely due to prices of maize and milk following reduced supply attributed to depressed rains, and edible oils and wheat products due to the impact of international supply chain disruptions.
“Fuel inflation increased to 12.6 percent in October from 11.7 percent in September, mainly due to scaling down of the fuel subsidy, increases in electricity prices due to higher tariffs, and increases in transport costs,” he said.
Njoroge highlighted that the global economic outlook has weakened further, reflecting the impact of the rapid tightening of monetary policy in advanced economies particularly the U.S., the ongoing war in Ukraine, and the lingering pandemic-related disruptions particularly in China.
He said that imports of goods increased by 18.0 percent in the 12 months to September 2022 compared to an increase of 12.6 percent in the 12 months to September 2021, mainly reflecting increased imports of oil and intermediate goods.
Njoroge said that receipts from services exports increased reflecting sustained improvement in international travel and transport.
“Remittances totaled USD3, 996 million in the 12 months to October 2022, and were 10.9 percent higher compared to a similar period in 2021,” said Njoroge.
He said that the current account deficit is estimated at 5.3 percent of GDP in the 12 months to September 2022. It is projected at 5.6 percent of GDP in 2022 compared to 5.9 percent previously estimated, on account of improved receipts from service exports and resilient remittances.
Njoroge said that the CBK foreign exchange reserves, which currently stand at USD 7,038 million (3.94 months of import cover), continue to provide adequate cover and a buffer against any short-term shocks in the foreign exchange market.
In the banking sector, Njoroge said that repayments and recoveries were noted in the building and construction, personal and household, and tourism, restaurant and hotels sectors.
“The number of loan applications and approvals remained strong, reflecting improved demand with increased economic activities,” he said.
He said that the Monetary Committee noted the sustained inflationary pressures, the elevated global risks and their monetary potential impact on the domestic economy and concluded that there was scope for a further tightening of the monetary policy in order to anchor inflation expectations.
“In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 8.25 percent to 8.75 percent,” said Njoroge.
He added that the Committee will closely monitor the impact of the policy measures, as well as developments in the global and domestic economy, and stands ready to take additional measures, as necessary.