Rates stable. Inflation stable. Shilling stable. Really?
The short work week didn't feel so short. Somehow markets still managed five days' worth of noteworthy events in four. But as April rolls in and indicators sync in their stability...we continue to observe the unending debates (especially around the KES).
Here are the stories that caught our eyes and ears in the week:
- CBK ready to oversee M-PESA post split
- KES is going strong
- CBK has tap open, mop out
Not to mention Blackrock (remember them?) were back saying more good things about the NSE which has gone from last to first in class...in USD terms.
Pro Tip #2 - Foreign investors measure their returns in our market in USD terms - currency changes directly increase or decrease their returns unlike a local currency investor.
SPOTLIGHT
You should take an interest in the CBR
In most countries, there's one interest rate that rules them all. The Central Bank of Kenya met last week to set ours and these are the minimum viable take-aways.
What Happened?
The CBK has left its benchmark lending rate unchanged at 13 per cent with inflation having retreated last month. Sentiment: Positive
Between The Lines
The objective of monetary policy is to maintain price stability in the economy. Price stability refers to maintenance of low and stable inflation.
All central banks have an ideal target range for inflation within which the economy will perform 'optimally'. At last week's meeting, the Monetary Policy Committee (MPC) noted that inflation is expected to remain within the target range, supported by lower food prices with the expected improved supply.
Should You Care?
For now, interest rates on your loans won't change. But this is one we recommend you spend a few minutes on and we have dedicated this week's Insight topic to the CBR. More below.
HEADLINES
This week's big stories
- CBK ready to oversee M-PESA post split. In 2022, CBK held talks with telecommunication companies with a view to separating mobile money activities from other businesses to enhance governance and minimize shocks on bank-related transactions. Safaricom’s M-PESA services continue to be the key cash cow for the business, contributing 42.1 per cent of the telcos revenue in the six months to 30th September 2023, up from 39.3 per cent in the same period in 2022. It will benefit all parties to arrive at a 'reasonable' resolution.
- KES is going strong. The shilling strengthened against the U.S. dollar Friday to close the week at the 130 mark, the strongest level in about a year. The surge in the shilling is attributed to an increase in dollar inflows from the International Monetary Fund (IMF) as well as foreigners investing in Kenya's debt market. Keep an eye on near term fundamentals.
- CBK has tap open, mop out. CBK mopped up liquidity in an oversubscribed tap sale taking Sh45 billion from reopened five, 10-year bonds. The uptake beats the target of Sh25 billion after a huge investor interest where total bids topped Sh47.7 billion in the auction that closed on Thursday. Accepted bids are expected to lock in a return of 18.41 percent from the re-opened five-year paper while the re-opened 10-year one has a return of 16.51 percent. High liquidity gives CBK confidence to try tame rates.
INSIGHT
Explained by AI (and I): Central Bank Rate
This week's explainer is brought to you by last week's CBK MPC meeting.
A central bank rate (CBR), often referred to as the "benchmark interest rate" or "policy rate," is the interest rate set by a country's central bank. It serves as a guide for other interest rates in the economy and influences borrowing and lending rates throughout the financial system.
This is one economic indicator that it would do you good to pay attention to, even beyond your investments. But as far as that goes, the CBR affects investments in these ways:
- Borrowing Costs: When it's low, borrowing money becomes cheaper, encouraging businesses and people to invest more.
- Bond Prices: Lower rates push up bond prices, and higher rates push them down.
- Stock Market: Lower rates can boost stock prices as borrowing is cheaper and stocks become more attractive than bonds.
- Currency Values: Lower rates tend to weaken a country's currency, benefiting exporters but making imports more expensive.
In short, changes in the central bank rate influence borrowing costs, bond prices, stock market performance, and currency values, affecting investment decisions. It has a knock on effect across an entire economy.
--
In Kenya, the Central Bank's Monetary Policy Committee is responsible for setting this rate and meets regularly to review it based on multiple other economic indicators. If you don't want to know too many, know this one.
ICYMI
Last is the first. In the space of a year, Kenya has gone from having the world’s worst-performing stock market to the best-performing (in dollar terms). This information is according to BlackRock Inc., as seen on Bloomberg. They cite favourable inflation & currency strengthening.
"Less" (FX) to go around. Earnings by listed banks from forex trading in the Kenyan market fell last year as margins for hard currency narrowed on increased dollar availability. Among the 10 listed commercial banks, total forex income in the year ended December 2023 dropped to Sh55.6 billion from the peak of Sh61.5 billion in 2022. FX trading generally makes a big contribution to banks' performance.
New standards, fresh capital. Nine banks that control 75 percent of the industry’s assets raised their total capital to Ksh1.11 trillion ($8.47 billion) in December 31, 2023 from Ksh496.98 billion ($3.79 billion) in December 31 2017, according to their audited financial statements. The central bank had spared Kenyan lenders from the requirements of the IFRS9 for one year (2018) and also granted the institutions a five-year (January 1, 2018- January 1, 2023) transition window to strengthen their capital positions. Necessary.
CMA mulls Sh7tr market cap by 2028 [People Daily]
Stronger shilling, softer inflation fail to lift business activities [Business Daily]
Kenya’s Stock Market Receives Major Boost After Upgrade [Business Today]
Foreigners sell Sh2.3 billion NSE stocks in three months [Business Daily]
REGION
What in the East Africa?
[TZ] Tanzania central bank raises key interest rate to tackle inflationary pressure: Tanzania's central bank raised its key interest rate on Thursday to stay ahead of lingering inflationary pressure from global economic developments despite satisfactory local conditions, its governor said. The bank raised its key rate to 6.0% on Thursday from 5.5%. [Link]
[UG] Business activity slows in March: The Stanbic Bank Uganda purchasing managers’ index, a measure of business activity in the private sector, fell to 49.3 for the month, down from 51.7 in February. A reading of below 50 indicates contraction compared with the previous month. The decline in business conditions is the first since July 2022. [Link]
[RW] BK Group CEO bullish on 2024 business outlook: However, the group is projecting a slow growth in profit before tax at 23 per cent in 2024, a downgrade that the chief executive said is based on “the expected impact of the prevailing market interest rates as they affect deposit mobilization, loans and stocks.” [Link]
[ET] Nigeria’s stock exchange buys stake in Ethiopia’s first-ever bourse: The Ethiopian government will hold a 25% stake in the ESX through the Ethiopian Investment Holdings (EIH) and its subsidiaries including Ethio telecom and Commercial Bank of Ethiopia, while private and institutional investors will be allocated a 75% stake. [Link]
CURIOUS
Two good not to share
One: “We need to get rid of the conventional interview process.” Those words by Dr. Temple Grandin (American author, academic & animal behaviourist), struck me and when you hear them in context in this 8min video, I’m sure you will feel something. Highly recommend.
Two: If you're not lucky enough to be on the path of today's total solar eclipse but would really like to witness one sometime (like me), not to worry. You can plan ahead for the next 20 years using this. Disclaimer: Kenya has to wait quite a while.
Thank you for making it this far. We hope you picked up something useful from this issue. You can also read last week's edition (our first) here.
As always, have the best week possible.
Yours truly.
Get This Weekly | Buy Me A Coffee | Feedback | Follow My X | My Band