The cash in circulation fell by Sh23.9 billion or nearly 10 percent in February compared to the same month last year, accelerating a trend also seen in the first month of the year.
Data from the Central Bank of Kenya (CBK) showed the total cash in circulation stood at Sh241.96 billion in February down from Sh265.87 billion in the same month last year.
This decline was an equivalent of nine percent.
In January, the amount of cash in circulation stood at Sh242.06 billion down from Sh262.38 billion at the same time last year — making a difference of Sh20.32 billion or a dip of 7.7 per cent.
Mr George Bodo, an investment analyst, said the amount of cash in circulation is often an indicator of economic activity and the expected demand for cash as projected by the Central Bank of Kenya (CBK).
The CBK appears to have projected a lower demand for cash at the beginning of the year, even though it has not released any explanations on the newest the data.
“The money in circulation indicates economic activity, so when it is expected to be higher the CBK releases money cash into the economy. It seems to have projected lower economic activity from the beginning of the year. Data for March and April should be even clearer [following the pandemic],” said Mr Bodo.
In August and September last year, there was a notable decline in the cash in circulation as the deadline for the removal of Sh1,000 notes from circulation approached.
At the time the economy was soft with growth in the domestic product falling to 5.4 percent compared to 6.3 percent in the previous year.
The money in circulation fell to Sh207.07 billion by the end of September, which was also the deadline for conversion of the old Sh1,000 notes into the new notes. By the end of the exercise some Sh7.3 billion was never returned to the CBK.
At the time analysts also cited slow release of payments to suppliers by the national and county governments as contributing to low cash in circulation.
The cash situation at the counties has not improved since then and is bound to worsen especially with the Treasury delaying funds for more than 27 counties.
This means county government workers will likely have their salaries delayed, and suppliers may have to wait longer for payments, all of which have the impact of taking much needed money out of the local economy.