Money in circulation in the economy reached a new high in July, reflecting increased spending power even as politicians loosened the purse strings and splurged on campaigns just days before the hotly contested August 9 elections.

According to the latest Central Bank of Kenya (CBK) statistics, currency outside banks - that is, money in the hands of consumers - reached Sh261.5 billion in July.

This is the most money circulating outside banks in a month since the CBK began publicly disclosing the data.

It is also a 6.5 percent increase from the Sh245.5 billion cash in circulation in June, indicating that Sh16 billion was released into the economy in a month.

"The net increase in currency in circulation was attributed to higher currency outflows (withdrawals) compared to net inflows (deposits)," CBK said.

According to the data, time deposits fell by Sh53 billion during the period, releasing more cash into circulation.

The high cash circulation suggests that politicians increased their spending on campaign items such as branded t-shirts, caps, vehicles, and sound systems, as well as pay staff and rally attendees, in the months leading up to the election.

High living expenses
It also indicates increased spending amid a high cost of living, which has seen basic commodities such as food, water, fuel, electricity, and rent rise in price.

Because of the high cost of living, more Kenyans are turning to banks, digital lenders, shylocks, and other lenders for loans to meet basic spending needs, while others borrow for income-generating ventures.

In September, inflation reached a 63-month high of 9.2 percent.

“The rise in inflation was largely due to increase in prices of commodities under food and non-alcoholic beverages (15.5 per cent), transport (10.2 per cent) and housing, water, electricity, gas and other fuels (7.3 per cent),” said the Kenya National Bureau of Statistics (KNBS).

Businesses are also borrowing more to inject cash into their operations to help them recover from the Covid-19 pandemic and expand their operations.

According to CBK data, the value of private sector loans reached Sh6 trillion for the first time in July, up from Sh5.89 trillion in June.

While 82.6 percent (Sh4.97 trillion) of this was lent to businesses across the economy, 17.4 percent (Sh1.04 trillion) was lent to private households.