By John Kariuki
Farmers Party Leader and the Chairman of the Kenyatta International Convention Centre KICC Irungu Nyakera, has called on the Central Bank of Kenya (CBK) to reconsider its current Cash Reserve Ratio (CRR) of 4.25%, suggesting a reduction to 2.5%—a level comparable to that of South Africa. According to Nyakera, such a move could release KES 60 billion into the economy, helping address the liquidity challenges currently facing Kenya.
The Cash Reserve Ratio, which dictates the percentage of total bank deposits that must be kept as reserves with the Central Bank, is a crucial tool in managing a nation's money supply. While Kenya’s CRR stands at 4.25%, other stable global economies, such as the United States, Canada, Australia, and Sweden, have set their CRR at 0%, with the Eurozone maintaining a rate of 1%.
Nyakera argues that lowering Kenya’s CRR to 2.5% would provide the banking sector with more capital to lend to the private sector, which has been hindered by banks’ reluctance to offer loans. The proposed reduction would effectively release substantial funds that could be directed toward both individuals and corporations, stimulating economic activity.
Furthermore, Nyakera suggests that CBK should implement strict guidelines requiring banks to use these newly freed funds exclusively for lending to the private sector, with a clear restriction on using the funds for government borrowing. Banks that fail to comply should revert to the original 4.25% CRR rate, ensuring that the funds are effectively channeled toward economic growth.
This proposal, according to Nyakera, could serve as a straightforward stimulus package for the government to consider, offering a quick and effective solution to ease liquidity pressures and encourage lending in the Kenyan economy.