The Central Bank of Kenya is expected to cut base lending rates on October 8 to stimulate demand in a struggling economy affected by high interest rates and inflation.
Kenya’s private sector activity deteriorated marginally in September on lingering cash flow challenges which hit output and demand for goods and services, findings of a monthly survey showed on October 3.
The Stanbic Kenya Purchasing Managers Index (PMI), which measures the performance of key indicators for the private sector such as output, new orders, and employment — dropped slightly to 49.7 from 50.6 in August.
PMI Readings below 50 signal a decline in month-on-month private sector deals while levels above point to growth.
The marginal deterioration reversed a recovery in August, the first in three months, after months of anti-government protests.
“Business conditions contracted slightly in September, implying that the pickup in August was due to some recovery after the disruptions caused by protests earlier this year,” Christopher Legilisho, chief economist for South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI report.
“New orders and output were weak due to subdued consumer demand – notwithstanding some firms reporting increased client turnout and higher investments.”
Sentiments drawn from about 400 panelists who participated in the monthly survey blamed the contraction in private sector conditions on economic challenges for businesses and households which slowed sales, prompting firms to cut back on output.
Wholesale and retail, agriculture, and services sectors posted a drop in business in September compared with a month earlier, the report suggests, while activities in manufacturing and construction sectors edged up.
Businesses and households have been battling a biting lack of money in circulation for months following deadly youth-led protests against new taxes and bad governance which created economic uncertainty, delaying consumer spending decisions.
The resultant political uncertainty, which shook President Willaim Ruto’s administration, exacerbated the cash flow challenges because of rising interest rates amidst elevated living cost pressures.
The countrywide protests, largely organized by youth on social media platforms and who said were not aligned to political or ethnic groupings, prompted Dr Ruto to drop the Finance Bill 2024 and dismiss about half of his Cabinet.
The protests, which were allegedly infiltrated by hired goons, paralysed businesses in major urban centres on the day of demonstrations, with hundreds of retail stores looted during the peak on June 25.
Panelists in the PMI report said sales were gradually improving going forward “amid greater customer turnout, higher investment and a positive impact from marketing”.
The Central Bank of Kenya’s Monetary Policy Committee is expected to cut base lending rates when it sits on Tuesday next week, October 8, signaling lenders to start cutting the cost of loans after September inflation slowed to its lowest levels since December 2012.
Lowering the cost of borrowing is expected to boost demand in a softening economy, hurt by high interest rates that were imposed to tame inflation.
The MPC cut the Central Bank Rate by 25 basis points to 12.75 percent during the last meeting on August 6.
Before cutting the CBR in August, the MPC had raised the rate by 5.5 percentage points since the tightening began in May 2022 through July 2024 to manage inflationary expectations by keeping the cost of borrowing elevated.
