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Kenya's money supply fell at its fastest rate in nearly two years in July, a red flag for the battered economy and financial markets.
The cash circulating within and outside the banking system fell in July by 7.54 per cent, or Sh419 billion, from a month earlier amid the raging economic crisis marked by a worsened cost of living.
The latest data published by Kenya National Bureau of Statistics (KNBS) shows that the metric also known as M3 money supply - the broadest measure of liquidity in the monetary system - fell to Sh5.1 trillion from Sh5.5 trillion a year earlier.
The decline of cash, which is a blunt measure of the economic activity in a country, is an indicator of economic slowdown as Kenyans and corporations confront the ongoing economic crisis amid a global capital flight to perceived safer havens.
Central banks use M3 money supply figures to direct monetary policy, thereby controlling inflation, consumption, growth, and liquidity over medium- and long-term periods.
The figure denotes liquid money in people's pockets and demand deposits such as in current accounts which one can walk into a bank and withdraw.
It also includes money in time deposits such as fixed-term deposits and other savings accounts on which one has to give notice to access and also that which is in foreign accounts owned by Kenyan families, individuals and companies.
Individuals and companies are confronting the effects of an economic slowdown amid a battered economy marked by job losses and a worsening cost of living crisis in recent months across nearly all sectors as companies intensify austerity measures to protect profits.
The National Treasury earlier warned that the Central Bank of Kenya's (CBK) fight to rein in inflation could tip the battered economy into a temporary recession.
The warning came at a time when the CBK has made attempts to curb high inflation through the toughest round of rate increases in recent years.
Treasury Cabinet Secretary Njuguna Ndung'u said recently that despite its unintended risks of slowing the economy, the fight against inflation was a necessary evil, adding that tightening interest rates has already borne fruit.
"This has its short-run consequences, it plunges the economy into a temporary recession," he said.
According to analysts, the twin blow of soaring fuel and energy prices and a crippling hike in interest rates has been the perfect storm for recession.
The sharp rise in interest rates threatens to choke economic growth as it has increased borrowing costs and encouraged cutting costs or saving over spending, investing, and hiring.
If lending dries up, that could weigh down on the value of stocks, real estate and other assets besides crimping overall demand - a recipe for a painful recession.
Inflation is tipped to edge up on the recent surge in fuel prices.
Prof Ndung'u earlier said that Russia's invasion of Ukraine had affected regional economies by slowing growth and jacking up inflation, increasing the cost of living and shrinking the fiscal space.
"What was a promising post-Covid-19 economic recovery is now overshadowed by new shocks and vulnerabilities," he said earlier.
"East African countries are grappling with the effects of these headwinds at a time when we should be consolidating policy actions to accelerate structural transformation to promote inclusive growth and build resilience across different sectors."
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