Kenyan Markets: A Close Shave of Last Week’s Market Performance

Secondary Turnover

Secondary market turnover declined 9.83 percent on a week-to-week basis to close at 9.63 billion shillings.

Trading was mainly concentrated on the 2018 papers with recently auctioned FXD2/2018/20yr emerging as the heavily traded bond.

The CBK Monetary Policy Committee meeting held in the week cut the benchmark rate by 50bps to 9.00 percent.

The policymakers noted that inflation expectations were well anchored within 2.50 – 7.50 percent target and that there was an output gap in the economy.

Kenyan Shilling to the Dollar

The shilling traded in a tight band against the US dollar supported by diaspora remittances and agricultural exports.

The US Federal Reserve, as widely expected maintained the fed fund rate at 1.75 – 2.00 percent range. However, non-farm payroll for the month of July fell below expectation with a print of 157,000.

Usable foreign exchange reserves held at the central bank declined by USD 71 million to USD 8.76 billion, an equivalent to 5.84 months of import cover.

Money Market:

The average interbank rate jumped 307bps to 8.19 percent in the week. This was attributed to a tight liquidity condition in the market on account of low government inflows.

This resulted in an interbank rate of between 7.90 percent and 9.50 percent on Friday’s session. CBK intervened in each daily session last week through reverse repo transactions to support market liquidity. The weekly volumes traded in the interbank market declined by 28.93 billion shillings to 47.13 billion shillings.

This Week’s Outlook:  

Economic analysts expect rates to fall further in the week in reaction to the policy rate cut news but the extent of the drop will heavily depend on the KES liquidity environment.

They still expect strained liquidity in the market which will continue suppressing T-Bill uptake. The National Assembly has also scheduled a second reading of the Finance Bill 2018.

The implementation of the provisional collection of taxes was suspended by High Court thus the onus is upon the Legislative to debate on the tax proposals as highlighted in the Finance Bill. Of interest in the Finance Bill is the proposed interest rate cap repeal and against the backdrop of last week’s rate cut (despite the perverse impact) signals CBK’s optimism that a repeal by the Legislature is imminent.