East Africa: Central Banks Ramp Up Coronavirus Response

CENTRAL banks of the East African Community member countries are contemplating swift interventions in response to the coronavirus crisis amid calls on regional governments to implement significant economic stimulus packages.

The COVID-19 outbreak seems to devastate economic activities, bringing life to a standstill as many countries are taking bold measures to control further spreading of the pandemic.

Such measures include lockdowns, curfews, and quarantines; meanwhile, businesses such as hotels and tourism are shut down.

The East African Business Council (EABC) Chief Executive Officer (CEO) and Executive Director, Dr Peter Mathuki unveiled to the 'Daily News' that the Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) met on 23rd March and analyzed the impact of the Covid-19 to Kenya's economy.

In light of the adverse economic outlook, said the former East African Legislative Assembly (EALA) member, the MPC divulged some policy actions to prevent the Covid-19 health crisis from becoming a severe economic and financial crisis. As of yesterday, Kenya had reported 42 cases of the novel virus.

"The CBK lowered the Central Bank Rate (CBR) from 8.25 per cent to 7 .25 per cent, reducing the Cash Reserve Ratio (CRR) from 5 .25 per cent to 4.25 per cent, released KES 35.2 billion as additional liquidity availed to banks to directly support borrowers that are distressed as a result of Covid-19," said Dr Mathuki.

The implications of the measures mitigate the adverse impact of the Covid- 19 to Kenya's economy and more importantly to the financial sector.

The policy actions boost liquidity in the market as well as support commercial banks with cash that they could lend to various borrowers.

Also, the policy actions will give incentives to banks to avoid increasing lending rates.

Similarly, the CBK announced various measures to mitigate the negative impact of the Covid-19 that include commercial banks to provide relief to borrowers on their loans due to the Covid-19 pandemic.

Other measures are that commercial banks now provide a one-year relief period on personal loans, including mobile money borrowers; banks to make it possible for Micro and Small Media Enterprise (MSME's) and corporate borrowers to contact their banks so that they could assess and restructure their loans based on special circumstances that have been caused by the Covid-19 pandemic.

CBK has also decided that the commercial banks will now bear the cost required to extend and restructure loans during the time of Covid-19 pandemic and that banks are to waive all charges for balance inquiries.

Given the fact that about 28 per cent of lending in Kenya comprises personal loans, the reliefs and measures will significantly cushion Kenyans against the impact of the Covid - 19.

The relief will ensure liquidity in the market and keep businesses afloat during the difficult time of Covid-19 pandemic.

The CBK has also unveiled a set of emergency measures to increase the use of mobile money transfers and curb the spread of Covid- 19.

he measures that will be effective until 30 th June 20 20 include zero charges for mobile transactions of up to Kshs 1,000 ; increase transaction limit to Kshs 150,000 (USD1447.7 30 ); the mobile money wallet limit and daily transactions limit is placed at Kshs300,000 (USD 28 95 .46 ).

The CBK has also directed removal of the monthly transactions limit, and eliminating the transfers between mobile money wallets and bank accounts.

The EABC says that the implication of the measures will encourage Kenyans to use digital channels and contactless mobile payments.

The measures will not only strengthen efforts to curb the spread of the Covid-19 but also sustain the payment of transactions even during the lockdown measures.

With 19 cases of Covid- 19 by yesterday, the Bank of Tanzania (BoT), conducted a consultative session with bankers through Tanzania Bankers Association, encouraging cashless transactions and other alternative payment channels.

Further to that, the bank is set to declare interventions that will promote the stability of Tanzania's economy amid the pandemic.

The Tanzanian shilling has remained consistent with the US dollar in terms of its value with an average of 2,30 2/-. However, at the beginning of the year, it depreciated until the end of February where it appreciated.

The trend took a turn on March 16, this year, where the first case of Covid-19 was reported in Tanzania and the currency depreciated with a slight recovery in the past two days.

The implication of this is higher prices for imported products including consumer and producer goods. That calls for an intervention from the Bank of Tanzania so as to mitigate the negative impact of higher prices.

Rwanda, with 70 confirmed cases of Covid-19, has imposed a lockdown and banned flights, leading to a significant effect on the economy.

In response, the Central Bank of Rwanda (BNR) has come out with various interventions aimed at not only combating the spread of the Covid-19 but also reducing the effect of doing business.

It has brought into effect the extension of lending facilities - more than 80 per cent of liquidity in local banks is generated from the domestic market.

With businesses slowing down, deposits coming to banks will decline. It is anticipated that banks might get affected with short term liquidity challenges because of the pandemic. The BNR has put in place a liquidity window to allow the banks to continue serving their customers.

To facilitate the private sector borrowers, a fund close to $5 2 million has been earmarked to bridge liquidity challenges and commercial banks could access the facility at the central bank rate.

The stimulus whose beneficiaries include individuals, SMEs and large corporates regardless of their sector of operation, is meant to relax measures on loans and give clients some room to breathe, given that the crisis does not go beyond six months.

The Central Bank announced lowering the requirement ratio from five per cent to four per cent to allow banks more liquidity to support affected businesses.

Normally, the central bank maintains a range of liquidity facilities such as intra-day liquidity facility, overnight lending facility, and reverse repo for seven days and refinancing facility for seven days that ensures that banks could lend.

Review of Treasury Bonds has been done for the next six months; BNR has offered to buy back bonds at the prevailing market rate.

The regulator also reduced the waiting period if one fails to sell the bond at the secondary market from the current 30 days to 15 days.

The implication is that money will flow from the Central Bank to individual banks leading to increased borrowing; hence there will be increased money circulation in the economy for the producers and consumers to use.

The Central Bank anticipates that customers with huge loans would face challenges in servicing the loans thus creating liquidity problems to the banks.

This is why banks are allowed to engage their customers and renegotiate terms especially to those with outstanding loans facing temporary cash flow challenges arising from the pandemic.

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