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A Week Of Economic Drama: Hiked Fuel Prices, Melting Trade Volumes, And Underperforming T-Bills

BY Standard Investment Bank · September 18, 2023 09:09 am

KEY POINTS

The Energy and Petroleum Regulatory Authority (EPRA), released fuel prices for the period between 15th September to 14th October 2023 highlighting that the prices of super petrol, diesel, and kerosene increased by 8.7%, 11.9% and 19.5% to KES 211.6, KES 201.0 and KES 202.6 per liter, respectively.

Liquidity conditions improved in the week, as the cost of funds in the money market declined to an average of 12.1%, from 12.4% recorded the previous week.

The performance was supported by a return in government inflows as receipts outweighed settlements. However, the average traded volumes fell 26.0% to KES 26.3 bn from KES 35.5 bn a week earlier.

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The table below summarizes the market liquidity indicators:

Despite the improved liquidity posture, Treasury bills were undersubscribed with the overall subscription coming in at 92.1%, down from 161.8% the previous week.

Investors bid KES 22.1 bn, with more than 80.0% of the bids geared towards the 91-day paper which recorded a 450.0% subscription, down from 870.8% recorded in the previous week.

The subscription rate for the 182-day and 364-day papers came in at 7.0% and 34.1%, respectively – the market-weighted average rate for the 364-day paper hit a record high of 17.2%, an indication of increasing investors’ aggression in seeking more compensation.

However, the weighted average rate of accepted bids declined to 14.7%, from 14.9%, the previous week.

See below a summary of the performance;

Meanwhile, the September bond offers recorded an undersubscription, having received bids worth KES 34.0 bn translating to a 97.2% subscription rate against the KES 35.0 bn that was offered. The performance was partly attributable to the tightened liquidity in the money market and increased activity in the secondary bond market.

In market news, kerosene prices see one of the largest increases in history on higher landed cost

Notably, for the first time since January 2020, kerosene prices have surpassed diesel prices which in our view is due to higher landed costs and the KES 18 anti-adulteration levy charged on kerosene only.

Cumulatively, fuel prices have increased by KES 34.3, KES 39.0, and KES 56.7 for petrol, diesel, and kerosene, respectively since the year began.

See below the evolution of fuel prices since January 2020;

In addition, the treasury released the exchequer issues for the first two months of 2023. Notably, Total revenues collected in the first two months of FY 23/24 increased by 13.0% to KES 320.8 bn, from KES 284.0 bn over a similar period in FY 22/23.

However, expenditure increased at a faster rate of 31.0% to KES 502.7 bn with the balance being funded by external and domestic borrowing.

We attribute the increase in revenues to the additional taxes as provided for by the Finance Act 2023, given that the business environment remains subdued.

We however note that in the month of August, the business environment experienced slight improvement with the Purchasing Manager’s Index (PMI) coming at 50.6. See the chart below for a summary of the y/y growth;