The amount of cash in Kenyans’ pockets increased during the coronavirus lockdown in April and May, signalling most workers kept loads of money at home when a plunge in economic activity hit the flow.
Central Bank of Kenya (CBK) data shows that the cash circulating outside banks stood at Sh194.2 billion in April and Sh197.8 billion in May compared to Sh192.4 billion in January and Sh195.1 billion in February.
The Sh4.6 billion rise came in a period when Kenya had reported a sharp decline in business activities from the impact of the coronavirus.
Analysts expected the containment measures introduced to curb the spread of the virus such a dusk-to-dawn curfew, closure of bars and schools as well as restrictions on movement in and out of Nairobi and four other counties to cut cash in circulation.
The impact of social distancing and curbs on businesses triggered job cuts and unpaid leave as workers and businesses struggled with reduced cash flow.
Firms complained of reduced demand for their goods and services due to a lack of cash for purchase of their products.
“Primarily, the books of CBK tell us of what is out, but it is totally another thing when it comes to how the cash outside banks is being used because it could be out there but it’s not being used,” Genghis Capital head of research Churchill Ogutu said on the phone.
He suggested that most people opted to keep cash in home safes amid the economic uncertainty surrounding the economy in the wake of Covid-19.
“Generally, people are not feeling that circulation or velocity of money on the ground. It’s just like when a company has a stock out there; how that stock is moving from person A to B becomes another thing altogether,” he added.
The money in demand deposit accounts — money kept in banks but is available on request — also rose by Sh60 billion in the period under review.
The rise in foreign currency bank deposits emerged in a period when Kenya announced its first Covid-19 cases and imposed tough restrictions, including a dusk-to-dawn curfew, on March 27.
Demand at home and in export markets slumped as consumers stayed indoors to avoid catching the virus and because of the government containment measures.
Consumption of electricity dropped by more than 10 percent in April and May as the pandemic hit consumer demand and forced firms to cut back on their operations.
The electricity regulator has linked the drop to reduced consumption by industrial and commercial users, who account for 70 percent of Kenya Power’s unit sales.
Power consumption is often an indicator of the number of electrical equipment plugged into the national grid — including industrial machinery — pointing to economic output.
The electricity consumption data tallied with the Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI)—which tracks business performance in the manufacturing and services sector that fell to 34.8 in April from 37.5 in March from 49.0 in February.
It recovered in May at 36.7, but still well below the 50 mark that separates expansion from contraction.
The Stanbic Bank report says contraction in output in April was “sharp”, citing a “steep drop in demand as customers remained fretful about the spread of Covid-19”.
“It’s safe to say that, at least with anecdotal evidence available so far, the epicentre of the Covid-19 impact on economic activity will be in the second quarter of this year,” Jibran Qureishi, economist for East Africa at Stanbic Bank, said in May.
But the Sh197.8 billion that was outside banks in May was the second highest since May last year when the CBK retired old Sh1,000 banknotes.
It was highest in December at Sh198 billion after dipping from a high of Sh222 billion in May last year.
On June 1, the regulator set September 30 as the deadline for everyone to convert their old Sh1,000 notes into new ones through the process known as demonetisation.
Those exchanging large amounts were required to explain how they acquired the cash. The move was designed to stop the flow of proceeds of crime such as corruption and counterfeiting of bank notes.
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