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Economic challenges not a hurdle for Kenya’s banking sector, says Central Bank of Kenya

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The Central Bank of Kenya forecasts a 5.7% increase in growth for 2022.

The banking sector outlook for 2022 is stable and resilient, underpinned by sufficient capital and liquidity buffers, the Central Bank of Kenya (CBK) said in its July 2022 financial stability report.

Overall, a careful policy balancing between stemming inflation through tightening policy rates and maintaining accommodative monetary policy is needed for sustained economic recovery and financial stability, the Central Bank of Kenya noted.

Following the lifting of restrictions that allowed for the complete restoration of commercial activity in 2021, the Kenyan economy recovered from the COVID-19 pandemic. The central bank forecasts a 5.7% increase in growth for 2022.

After experiencing a 0.3% decline in 2020, the economy recovered to post 6.8% growth in 2021.

Effective implementation of monetary, fiscal, and financial policies, in addition to the relaxation of COVID-19 containment measures, not only played a stabilizing role but also created an atmosphere that was favorable for economic recovery.

After surviving the Omicron variation in the fourth quarter of 2021, a successful vaccine, and improved adherence to COVID-19 guidelines, recovery is still on track.

However, the research cautioned that some of the main domestic risks to development include the potential return or introduction of the COVID-19 virus mutation, poor credit uptake during the electioneering period, and drought shock to agriculture.

According to the paper, the Russia-Ukraine war has impacted energy and commodity prices, increased global inflation, and caused a faster-than-expected tightening of monetary policy.

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