Liquidity conditions remained stable in the week, with the Kenya Shilling Overnight Interbank Average (KESONIA) closing at an average of 8.75%. Interbank lending increased by 19% in the week, with average traded volumes coming in at KES 11.40Bn from last week’s KES 9.60Bn. Notably, the interbank deals increased by 44% to close the week at 23, compared to the 16 recorded in the previous week.
Investor appetite for Treasury Bills softened this week as total submitted bids fell to KES 42.72 billion compared to KES 55.51 billion recorded last week, of which the fiscal agent accepted KES 42.42 billion, resulting in a subscription rate of 99% and a performance rate of 153%; outperforming the subscription rate of 96%, recorded the previous week.
The 91-day Treasury Bill remained the most attractive debt instrument, registering a performance rate of 291%. The auction was significantly oversubscribed, receiving KES 23Bn in bids compared to the KES 8.0Bn on offer.
In the primary space, the Central Bank of Kenya recently released the auction results for two reopened, bonds (FXD1/2019/020 and FXD1/2026/030) carrying coupon rates of 12.9% and 12.5%, respectively.
Investor demand was strong, pushing total bids to KES 81Bn against an initial offer of KES 60Bn. This resulted in an overall oversubscription rate of 136%. Out of the bids received, the government accepted KES 50Bn, achieving a 61% acceptance rate.
The Kenyan Shilling displayed mixed week-over-week (w/w) performance against major global and regional currencies. Against global majors, the Shilling strengthened significantly by 3.3% against the Japanese Yen (JPY/KES), while remaining virtually flat ((0.0%)) against the U.S. Dollar (USD/KES). Conversely, it weakened across European counters, depreciating by (0.6%) against the British Pound (GBP/KES) and (0.5%) against the Euro (EUR/KES). Regionally, the Shilling recorded broad-based gains, surging by 2.8% against the Ugandan Shilling (KES/UGX) and advancing 0.2% against the Tanzanian Shilling (KES/TZX).
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The U.S. Dollar Index was weakened by 0.13% during the week.
Murban crude oil prices rose to USD 95.41 per barrel on September 10, from USD 86.01 per barrel on September 3, following increased concerns about oil supply risks due to the renewed disruptions in the Middle East during the week. Spot gold prices declined to USD 4,315.69 per ounce from USD 4,472.86 per ounce in the previous week.
Weekly Insight: Strait Tensions, Sovereign Yield Spikes, and BoJ Rate Expectations
The third week of September 2026 was defined by synchronized monetary tightening from major central banks and volatile, supply-constrained commodity markets. In a landmark 48-hour window, both the U.S. Federal Reserve and the Bank of Japan delivered 25-basis-point rate hikes to counter persistent inflation and rising input costs tied to ongoing Middle Eastern energy disruptions. While crude oil benchmarks temporarily retrenched late in the week as alternative maritime routing protocols mitigated immediate bottleneck fears, structural supply chain friction through the Strait of Hormuz kept global price pressures elevated. Sovereign bond markets experienced widespread yield curve expansion as fixed-income desks priced in an extended restrictive policy environment, while major foreign exchange pairs underwent heightened volatility following key central bank rate decisions and forward guidance shifts.
Dual Central Bank Hikes & Hawkish Policy Alignment
Global monetary policy underwent a synchronized tightening cycle as both the U.S. Federal Reserve and the Bank of Japan delivered key rate hikes within 48 hours. On September 16, the Federal Open Market Committee (FOMC) raised the federal funds target rate range by 25 basis points to 3.75%–4.00%, citing persistent headline inflation and resilient labor conditions.
Following suit on September 18, the Bank of Japan raised its benchmark overnight call rate by 25 basis points to 1.25%—pushing Japanese borrowing costs to a 31-year high. This coordinated double-tightening move underscores central banks’ shared commitment to anchoring medium-term inflation expectations and containing currency volatility amid lingering global cost-push risks.
Strait of Hormuz Supply Realignment & Energy Price Retrenchment
Crude oil markets experienced volatile trading as immediate Middle Eastern supply concerns saw temporary relief toward the end of the week. After Brent crude spiked near $110 per barrel earlier in the week due to persistent military tensions and transit blockades in the Strait of Hormuz, energy benchmarks eased as ship-to-ship transfer protocols outside the Persian Gulf mitigated immediate bottleneck fears. Murban crude prices subsequently moderated toward $94.70 per barrel. Nevertheless, elevated maritime freight tariffs and ongoing geopolitical risk premiums continue to apply upward pressure on underlying manufacturing input costs globally.
Global Yield Curve Steepening & Sovereign Debt Pressure
Sovereign bond markets faced broad-based selling pressure as fixed-income desks priced in the dual rate increases from the Federal Reserve and the Bank of Japan. The U.S. 10-year Treasury yield hovered near multi-month highs around 4.80%, reflecting market expectations that official policy rates will remain in restrictive territory well into late 2026.
Internationally, Japanese Government Bond (JGB) yields expanded across the
curve following the BoJ’s policy rate increase to 1.25%, while European and
emerging market sovereign debt—including Kenya’s Eurobonds, which saw yields
rise by 9.5 bps on average—faced expanded term premiums as investors demanded
higher compensation for persistent inflation overhead.
European Energy Deficit & Import Strain
European energy security faced severe pressure through mid-September as persistent maritime blockades in the Strait of Hormuz drastically curtailed Middle Eastern crude oil and LNG deliveries into the continent. With the recent disruption of Saudi Arabia’s East-West pipeline further limiting Red Sea bypass routes, European refiners have been forced to source far more expensive spot cargoes
from the Atlantic Basin and Caspian region. This severe supply squeeze—compounded by soaring maritime freight rates and insurance premiums—pushed EU petrol prices up 24% year-on-year and diesel up 38%. As benchmark European natural gas prices surged past €81/MWh, European policymakers are navigating a worsening stagflationary environment, balancing emergency sector subsidies against accelerating energy-driven inflation.
Foreign Exchange Volatility & Rate-Differential Shifts
Foreign exchange markets exhibited heightened volatility surrounding the FOMC and BoJ monetary decisions. The Japanese Yen saw active two-way trading; USD/JPY initially tested resistance near the 160.00 threshold before consolidating as the BoJ’s rate hike narrowed short-term yield differentials against the U.S. Dollar. Concurrently, the Euro (EUR/USD) traded in a tight range around 1.1550–1.1600, weighed down by weak Eurozone growth trends and elevated energy import bills despite broad-based U.S. Dollar support following the Fed’s rate hike.
Exchequer releases August 2026.
Kenya’s fiscal outturn as of August 31st, 2026 (Month 2 of FY2026/27) showed total tax revenue collections reaching KES 178.22Bn, representing a 13.35% y/y increase. Non-tax revenue stood at KES 5.89Bn, while total domestic financing was heavily anchored by domestic borrowing at KES 325.59Bn, alongside KES 1.23Bn in other domestic financing. External support remained modest, with loans and grants contributing KES 3.94Bn.
On the expenditure side, debt obligations dominated public outlays, with public debt service consuming KES 267.09Bn. Recurrent spending took up KES 141.19Bn, while development spending lagged at KES 14.98Bn. Transfers to regional governments via the Counties’ Equitable Share accounted for KES 34.24Bn.
September pump prices.
The Energy and Petroleum Regulatory Authority (EPRA) has kept pump prices unchanged for the September 15 to October 14, 2026 pricing cycle, offering consumers temporary relief.
The steady pricing comes despite mixed shifts in imported landed costs between July and August 2026. While the landed cost of Super Petrol dropped 7.87% (to $874.26 per cubic metre), Diesel and Kerosene rose by 11.86% (to $957.05 per cubic metre) and 9.71% (to $1,003.87 per cubic metre) respectively. Foreign exchange rates remained largely flat, with the USD/KES rate shifting slightly from 129.52 in September 2025 to 129.72 in August 2026.
Looking ahead, Potential supply chain risks and regional infrastructure disruptions could drive additional upward pressure into the final quarter of 2026. Unless the government introduces extended VAT relief or further price-stabilization measures, domestic pump prices are likely to face sustained upward pressure in the near term.
This content was republished 100% from the Standard Investment Bank (SIB) Weekly Report for September 21, 2026. The full report can be downloaded HERE.
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