The biggest factor in the global market perspective is driving investor sentiment in whether US Fed meeting taking place on the 22 September 2021 will signal a November tapering decision.
This is important because Fed tapering, or reducing the money being pumped into the US economy, may be accompanied by market expectations of when the first Fed rate hike will be. The country is on the look-out for when this hike will take place.
Kenya may be sensitive to the changes in investor perception to emerging and frontier markets through its Nairobi securities exchange (NSE). This is because foreigners account for a large portion of the daily turnover. Hence global investor sentiment, among other factors, is key to local market performance.
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Recently, the International Monetary Fund (IMF) approved Special Drawing Rights (SDR) allocations (IMF currency) of a historic amount USD 650billion. This has been proportionally distributed to IMF member countries depending on their quota. This move was to boost countries’ capacity to navigate the devastating effects of the pandemic. The coming months could bring further discussion on re-allocation of these SDR funds from developed countries to those that need the resources the most.
Back home, Kenya has received these SDR allocations, which likely explains the increase in Kenya’s foreign exchange reserves of USD 738million in the past week to USD 9.6 billion (5.9 months of import cover) which is a healthy level. To bring this into perspective, the East Africa region criterion is about 4 months of import cover.
To a more topical theme, international oil prices were 1.5x times higher back in 2011 than they are now; yet pump prices are at record levels. This may result in inflationary pressures. However, we are also cognisant of the fact that Kenya’s fiscal position has changed in the last decade which could be caused by the infrastructural projects that the government has taken to open-up the economy and hence the painful need to raise more revenue through taxes, to stabilise its debt levels.
Even with inflationary risks in the near term, we still expect the Central Bank of Kenya (CBK) and its upcoming monthly policy committee (MPC) to keep its policy rate on hold at 7% in its upcoming meeting.