The economy is starting to shape-up as money in circulation outside banks and in people’s pockets hits a 13 month high in June.
Data from the Central Bank of Kenya (CBK) shows that cash outside banks rose from Ksh 197.86 billion in May to Ksh 210.8 billion in June. This marks the first time it has crossed the Ksh 200 billion mark since May 2019 when Kenya retired old Ksh 1,000 banknotes.
The switch in currency resulted to a drop in money circulation outside banks. The CBK moved to introduce new generation notes as a measure to freeze money laundering and corruption out of the country.
The jump in circulation comes in a month when Kenya eased Covid-19 restrictions, reducing the nationwide nightly curfew by three hours to between 9 pm. and 4 am and lifting lockdowns on Nairobi and Mombasa.
Money circulating outside banks represents the most liquid of monetary assets and is mostly held in bulk by individuals in homes and big businesses such as petrol stations, supermarkets, hardware stores, and other big shops.
Perhaps people are cashing out on their savings as a measure to insulate themselves from the pandemic hence the increase in money circulating outside financial institutions. During the pandemic, people have been conservative with their money.
Cash held by banks in their tills declined by Sh4.6 billion, from Sh51.57 billion in May to Sh46.9 billion in June. This means more liquid cash left the banking system to the pockets of individuals and businesses.
During the period under review, cash available for withdrawal in banks rose by 11% to an all-time high of Ksh 1.349 trillion in June from Ksh 1.293 trillion in the same period last year. This indicates that people are looking to have their cash within easy reach.
Cash in circulation acts as an indicator of economic times as people tend to hold physical cash for speculative reasons and in anticipation of impending economic shocks. The pandemic has battered the economy, with the Treasury projecting growth to slow to 2.5% this year from 5.4% last year.
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