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Moody’s lauds Kenya’s tax cuts to cushion coronavirus impact

Global rating agency Moody’s on Tuesday lauded the raft of monetary and fiscal policy measures introduced by Kenyan authorities to mitigate the impact of the coronavirus outbreak on the economy.The credit rating agency said it expected the measures to soften the adverse impact of the economic disruptions on banks’ asset quality and liquidity.

“Monetary measures like the cuts to the Central Bank Rate (CBR) and Cash Reserve Ratio (CRR) will enable credit to keep flowing to businesses and households, and help the banking system remain sufficiently liquid,” said Christos Theofilou, a banking analyst at Moody’s.

Monetary measures announced by the Central Bank of Kenya last week include 100 basis-point cuts to the CBR to 7.25% and the CRR to 4.25%, as well as an extension of the tenure on repurchase agreements (repos) to 91 days, up from 28 days currently.

The measures aim to ensure that credit continues to flow to businesses and households and that the banking system remains sufficiently liquid.

The CRR reduction is expected to release some 35.2 billion shillings (about US$332 million) of liquidity, enabling banks to extend new lending or reschedule existing facilities to affected borrowers, a condition for banks to access these funds.

The reduction in the benchmark rate and extension of repo tenures is meant to ensure the availability of adequate liquidity across the banking system.

Theofilou also applauded a raft of fiscal measures announced by the Kenyan government on 25 March to build a safety net around the vulnerable individuals and businesses.

These include tax relief for low-income citizens, reductions in personal income, corporate and value-added tax (VAT) rates, and the rapid repayment by authorities of 10 billion shillings in VAT refunds.

Published on 28.04.2020

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