New data from the Treasury reveals a substantial slowdown in money supply growth. The growth rate has dropped significantly from 13.4% last year to just 6% in the year to June 2024.
The rate at which the money supply is growing has significantly slowed down compared to 2023
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The figures show that the country's broad money supply grew by only 6% in the financial year ending June 2024. This marks a significant decline from the 13.4% growth recorded over the same period in 2023.
What's Behind the Slowdown?
The primary reason for this slower growth is a sharp reduction in net domestic assets (NDA). This is mainly due to a decrease in domestic lending and credit activities.
“The slowdown in the growth of M3 (Money Supply) was due to a decline in the growth of Net Domestic Assets (NDA), particularly the domestic credit,” states the 2024 Budget Review and Outlook Paper.
Private Sector Lending Trends
Credit growth to the private sector has also seen a slowdown, expanding by just 4% in the year to June 2024, a significant drop from 12.2% in the previous year.
Several factors contributed to this decline, including a stronger local currency affecting foreign-currency loans and tighter monetary policies that made borrowing more expensive. Sectors like manufacturing, trade (especially exports), and construction faced challenges in accessing credit due to their reliance on foreign currency loans.
Public Sector Lending Trends
Government borrowing from banks also experienced a slowdown, with loans growing by only 7.9% in the year to June 2024. This is a notable decrease from the 13% growth recorded in the previous year.
The decline suggests that banks are taking a more cautious approach to lending to the government, possibly due to fiscal tightening or efforts to reduce public debt.
Increase in Net Foreign Assets
In contrast, net foreign assets (NFA) saw a substantial rise, growing by 53.2% in the year to June 2024—nearly doubling the 29.5% growth seen in 2023.
The NFA increased dramatically from Sh591.5 billion in June 2023 to Sh905.9 billion in June 2024. This growth was largely due to foreign assets held by banking institutions, which surged by an impressive 1,780.1%. Meanwhile, the Central Bank’s NFA decreased by 22.3%.
This trend indicates that more Kenyans and banks are holding assets in foreign currencies, likely as a hedge against local currency fluctuations.
Looking Ahead
The current economic outlook suggests that the banking sector may continue to lean on foreign investments to maintain financial stability, particularly given the subdued growth in domestic credit.
As the country moves forward, it will be crucial to monitor how these trends affect public finance, government borrowing, and the private sector. Financial experts recommend maintaining a balanced approach between domestic and foreign assets to ensure sustainable growth and economic stability in the coming years.