Cash outside banks falls the fastest in five years

Kenyan currency

Movement of cash is an indicator of country’s economic activity among households and small businesses.

Photo credit: Jeff Angote | Nation Media Group

What you need to know:

  • The decline in January is attributable to State bid to mop up money from economy.
  • Reduction in cash circulation reflected low spending after the December festivities.

Cash circulating outside banks dipped at the fastest rate in January this year since Kenya’s demonetisation five years ago after it fell by Sh13.3 billion to stand at Sh268.8 billion.

Data from the Central Bank of Kenya (CBK) shows that this is the biggest fall in 52 months since September 2019 when it dropped by Sh28.4 billion at the height of the four-month demonetisation that was undertaken between June 1 and September 30 of the same year.

Movement of cash in the form of notes and coins is used as an indicator of the country’s economic activity among households and small businesses.

Reduction in cash circulation reflected low spending after the spike during December festivities, in a period that coincided with massive cash demands as Kenyans raced to settle bills that spanned back-to-school expenditures amid rising living costs.

Reopening of schools has traditionally seen cash in circulation dip every January as parents bank their money into school fees accounts, and pay for other related education expenses.

This January, the drop is further attributable to heightened aggression by the government to mop up currency from the economy through recurring floating of Treasury bills and bonds, at a time when the average commercial bank deposit rate hit 10.1 per cent, marking the first double-digit return since January 2000.

January is also the month when the final round of taxes contained in the Finance Act 2023 took effect, among them the increase in advance rates for load vehicles such as trucks, lorries and pick-ups.

The impact of inflationary pressures due to rising food and energy prices also worked to thin the amount of disposable incomes in Kenyans’ hands during the month.

During the period, the amount of demand deposits — cash in banks that is available for withdrawal– rose marginally by Sh10.9 million to Sh1.67 trillion from Sh1.66 trillion in December last year.

Quasi-money in banks and non-banking financial institutions including such money held in money markets accounts and short-term deposits, however, dropped slightly by Sh6.98 million from Sh1.91 trillion to Sh1.9 trillion, reinforcing the need for easily liquidated money.

Foreign currency deposits held in local banks increased during the month by the equivalent of Sh55 million to Sh1.6 trillion, coinciding with the 10.7 per cent month-on-month growth in diaspora remittance inflows which hit $412.4 million (Sh54.7 billion in current exchange rates) in January compared to $372.6 million (Sh49.4 billion) in December 2023.