Inflation For August To Ease To 6.1 Percent – Cytonn Investments

“We are projecting the year-to-year inflation rate for the month of August to come in within the range of 5.7% – 6.1%, compared to 6.3% recorded in July,” says Cytonn Investments.

The inflation for the month of August is expected to decline due to:

• A decline in the food and non-alcoholic beverages index, which has a weighting of 36.0 percent, mainly driven by a decline recorded in food prices such as tomatoes and potatoes with the prices of maize flour, which is a key commodity remaining unchanged during the month,
• A decline in the transport index following the 2.5 and 3.2 percent declines in petrol and diesel prices, respectively during the month.

Cytonn says Kenyans should expect a rise in the housing, water, electricity, gas and other fuels during the month owing to the 1.9 percent rise in kerosene prices.

“Going forward, we expect the inflation rate to remain within the Government set range of 2.5 – 7.5 percent,” added Cytonn.

Despite the fact that the price of fuel was brought slightly down during the month, Kenyans are yet t reap the benefits as prices of other basic commodities are still high.

Rates in the Fixed Market

Rates in the fixed income market have remained relatively stable as the government rejects expensive bids that might hurt the local currency.

A budget deficit is likely to result from depressed revenue collection with the revenue target for FY’2019/2020 at 2.1 trillion shillings creating uncertainty in the interest rate environment as additional borrowing from the domestic market goes to plug the deficit.

“Despite this, we do not expect upward pressure on interest rates due to increased demand for government securities, driven by improved liquidity in the market owing to the relatively high debt maturities.”

According to Cytonn, investors should be biased towards medium-term fixed income instruments to reduce duration risk associated with long-term debt, coupled with the relatively flat yield curve on the long-end due to saturation of long-term bonds.