Private Sector Data Wobbles As Protests Stir Up Uncertainty Inbox

By Standard Investment Bank / Published August 12, 2024 | 4:19 pm

During the week, the liquidity gaps in the interbank market narrowed slightly with the average lending rate decreasing marginally to 13.14% from the previous week’s 13.19%. Similarly, average traded volumes declined marginally to KES 33.69bn from KES 34.00bn, in tandem with a 3.7% drop in the number of interbank deals.

The open market operations remained active with the Central Bank injecting KES 120.61bn through 4-, 6-, 7- and 14-day reverse repos at an average rate of 13.78%. The lending rates saw a slight decline following the downward revision of the Central Bank Rate.

Government securities have experienced a notable increase in rates both month-to-date and year-to-date, except for short-term instruments on a monthly basis. The yield curve reflects mixed market sentiments: investors anticipate some economic uncertainty in the near term, leading to an inverted yield curve. Although there’s a clear upward trend in long-term rates, the most rapid escalation is observed in medium-term securities.

In the foreign exchange market, the Kenyan shilling maintained its strength against most tracked currencies, except the Japanese Yen and Euro.

July PMI: Private Sector data Wobbles as Protests Stir Up Economic Uncertainty

According to Stanbic Bank Kenya’s PMI survey, business activity in the private sector deteriorated for the second consecutive month in July with the index dropping to 43.1, from 47.2, in June, marking the worst performance in more than three years.

The performance was primarily driven by precautionary spending behavior amid the nationwide demonstrations, which disrupted business activities due to heightened uncertainty, significantly impacting sales and, subsequently, overall output.

Business confidence dropped to its second-lowest level on record, just above the February low. This reflects heightened uncertainty in the economic environment, with the private sector grappling with challenges such as costly credit and existing tax burdens.

MPC lowers base rate by 25bps to 12.75% in alignment with global cues

The Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) met Tuesday, 6th August 2024, and decided to lower the Central Bank Rate (CBR) to 12.75%, against our expectations.

This decision was influenced by several positive economic indicators, including inflation rates falling below the mid-point and a stable exchange rate against the dollar. Additionally, global economic trends and signals that other economies are likely to follow suit in cutting rates contributed to the CBK’s decision.

Private sector credit growth decelerated to 4.0% in June 2024 from 4.5% and 12.2% in May 2024 and June 2023, respectively – the slowest growth in over five years. The performance was partly due to exchange rate valuation effects on foreign currency-denominated loans following the appreciation of the Shilling. Growth in local currency-denominated loans was 10.2% in April, while foreign currency-denominated loans, which comprise approximately 26% of total loans, contracted by 13.3%.

Read Also: Kenyan Economy Grows 5.6% In 2023