Cytonn Investments has projected that the inflation rate for the month of December 2021 will range between 5.7 and 6.1 percent.
According to Cytonn, factors that will determine the inflation rate will be fuel and food prices. For instance, fuel prices for the period 15th December 2021 to 14th January 2022 remained unchanged at 129.7 shillings per liter for Super Petrol, 110.6 shillings per liter for Diesel, and 103.5 shillings per liter for Kerosene. With fuel being a major contributor to Kenya’s headline inflation, maintaining constant fuel prices is expected to have a muted impact on the inflation basket,
At the same time, food prices have remained relatively stable during the month attributable to improved agricultural output due to the ongoing rains in some parts of the country.
The foreign exchange fluctuation tariff for electricity usage remained relatively unchanged at 73.1 cents per Kilowatt hour (KWh) in December, from 73.0 cents per Kilowatt hour (KWh) in November 2021.
However, the fuel cost charge on electricity bills increased by 10.0 percent to 4.6 shillings per Kilowatt hour (KWh) in December, from 4.2 shillings per Kilowatt hour (KWh) in November.
“Going forward, we expect the inflation rate to remain within the government’s set range of 2.5% – 7.5%. However, concerns remain high on the widening trade deficit as global fuel prices continue to rise due to supply bottlenecks,” said Cytonn.
Rates in the fixed income market have remained relatively stable due to the tightened but sufficient levels of liquidity in the money markets.
The government is 14.1 percent ahead of its prorated borrowing target of 329.3 billion shillings having borrowed 375.7 billion shillings of the 658.5 billion shillings borrowing target for the FY’2021/2022.
“We expect a gradual economic recovery going into FY’2021/2022 as evidenced by KRAs collection of 740.0 billion shillings in revenues during the first five months of the current fiscal year, which is equivalent to 100.0 percent of the prorated revenue collection target,” said Cytonn.
However, despite the projected high budget deficit of 7.5 percent and the lower credit rating from S&P Global to ‘B’ from ‘B+’, “we believe that the support from the IMF and World Bank will mean that the interest rate environment will remain stable since the government is not desperate for cash.”