MPC Expected to Maintain Interest rate at 10pc

Macro Economic

Expectations are mounting that the Central Bank of Kenya Monetary Policy Meeting – slated for end January-  will maintain the interest rate at 10.0%. The forecasts are informed by a deceleration in GDP growth projections attributed to weaker private sector credit growth. GDP growth was reported on a low gear of 5.7% in 3Q16 against a 6.0% in 3Q15. However, the shilling is expected to be under pressure against a stronger dollar in the near-term attributed to US Federal monetary tightening.

Fixed Income

The market turnover picked up slightly yesterday to KES 555Mn with continued interest on the medium-to-long end of the curve. There was not much movement on yields with most investors awaiting the 364 day T bill results for direction signal. The 182 and 364 day T-bill  remain range bound both dropping by 1 basis points, despite under-subscriptions of KES 1.94Bn and KES 3.35Bn against an offered amount of KES 6Bn per tenor. It seems the local unit will heavily influence the rates in the coming days as it continues loosing ground against the greenback, consequently forcing the CBK to come in to support. The USDKES currency pair ended the day at 103.60/80. The Central Bank reserves have fallen to 4.56 months of import cover as at end of 2016 from a high of 5.18 months at the beginning of  4Q16 and is expected to fall further in coming days.

Corporate News

• Electricity distributor Kenya Power Ltd (NSE: KPLC) has announced having suspended its bill payment deal with listed retailer Uchumi Supermarkets Ltd (NSE: UCHM) in the last quarter of 2016. According to the utility firm, Uchumi has been collecting money from Kenya Power customers without remitting the monies to Kenya Power. Uchumi is currently weighed down with a heavy debt burden as it owes KES 2.5Bn to debtors and KES 3.6Bn to suppliers. Kenya Power on the other hand has been on an aggressive debt recovery measures that has seen it trim its outstanding bills from KES 12.4Bn as at financial year ending June 2016 to KES 5.2Bn as at end 2016.
• Safaricom Ltd (NSE: SCOM) has been given a headstart to roll-out countrywide 4G high speed coverage across the country after paying KES 2.5Bn license fee. The telco company had been on a two-year pilot program for the 4G internet spectrum after overcoming initial tailwinds from competitors opposed to the trial.
• Listed electricity generator KenGen (NSE: KEGN) has re-appointed Managing Director and Chief Executive Officer Eng Albert Mugo for a one-year term. The extension will see Mr Mugo overseeing the new projects which are currently at the development stage.
• UAP-Old Mutual Group has signed a partnership deal with an investment Group, Fountain Enterprises Programme (FEP). This deal will see the two partners jointly develop co-branded medical and general insurance. FEP Holdings current product offering includes; vehicle, home, personal accident and medical insurance for individual clients with a network that cuts across 44 counties. This deal will grow the two partner’s general insurance business, improving their bottom line performance. UAP ltd is currently trading at KES 180 over the counter.

Trading Expectation

Market volume receded slightly in yesterday’s session on account of subdued foreign participation. KenolKobil Ltd (NSE: KENO) occupied top spot of most traded counter by foreigners, followed by KCB Group Ltd (NSE:KCB) and  The Cooperative Bank of Kenya (NSE: COOP) which noted a net foreign interest. Britam Holdings Ltd (NSE: BRIT) was the biggest laggard as a supply surge weighed on the counter’s price. We expect continued interest on the Britam Holdings Ltd (NSE: BRIT) counter, Safaricom Ltd (NSE: SCOM) as it charts 4G internet spectrum expansion across Kenya and East African Breweries Ltd (NSE: EABL) on account of attractive price levels.

Related: Safaricom Expands 4G Network To Meet Growing Broadband Demand