Weekly Commentary – 26th March 2021

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 7,344 million (4.51 months of import cover). This meets CBK’s statutory requirement to endeavor to maintain at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.

Currency

The Kenyan Shilling appreciated against all major currencies. It appreciated against the Dollar, the Euro and the Sterling Pound. The strengthening of the shilling is attributable to increased inflows from agricultural products and remittances which outweighed the subdued dollar demand from importers.

	Week Before	Week After
Dollar	109.86	109.79
Euro	131.09	129.75
Sterling Pound	153.17	150.45

Liquidity

Money markets remained relatively liquid supported by government’s payments which partly offset tax remittances.

Remittance inflows increased by 18.9% to $260.2 million in February compared to $219.0 in February 2020. This is in relation to the 4.25 percent cash reserves requirement (CRR). Open market operations remained active.

	Week Before	Week After
Interbank rate	5.40%	5.59%
Interbank volume (billion)	13.22	11.16
Commercial banks’ excess reserves (billion)	21.6	15.3

Fixed Income

T-Bills

The Treasury Bills were under-subscribed. The under-subscription in T-Bills is attributable to tightened liquidity in the money market.

T-Bill	Yield (% Rate)		Subscription Rate
	Week Before	Week After	Week Before	Week After
Overall			114.99%	95.70%
91 day	7.07%	7.09%	135.56%	82.57%
182 day	7.88%	7.89%	70.99%	30.71%
364 day	9.21%	9.26%	150.77%	165.95%

T-Bonds

The bonds market had high demand for the month’s bond offers. Bonds turnover increased to Sh 11.45 billion from Sh 10.88 billion. The Central Bank of Kenya opened bidding for an infrastructure bond IFB1/2021/18, with an effective tenor of 18 years, as it seeks to raise Kshs 60 billion to fund infrastructure projects.

Equities

NASI, NSE 20 and NSE 25 declined by 0.28%, 1.58% and 1.21%. The performance was driven by losses recorded by large-cap stocks. Top losses were recorded in Diamond Trust Bank, NCBA Group and Absa Bank which decreased by 9.8%, 7.4% and 6.1% respectively.

The Banking sector had shares worth Kshs 895M transacted which accounted for 37.17% of the week’s traded value, Manufacturing & Allied sectors represented 6.97% and Safaricom with shares worth Kshs 1.2B transacted, contributed 51.05%.

Top Losers	W-o-W
Diamond Trust Bank	-9.83%
NCBA	-7.41%
Liberty Holdings	-6.39%
Absa Bank	-6.14%
Jubilee Holdings	-6.05%

Alternative Investments

	Week Before	Week After	% Change
Derivatives Turnover (million)	11.87	5.05	-57.47%
Derivatives Contracts	299	126	-57.86%
I-REIT Turnover (million)	0.34	1.00	192.31%
I-REIT Total Deals	45	57	26.67%

Global and Regional Markets

Global Markets	W-o-W
S&P 500	1.57%
Dow Jones Industrial Average (DJI)	1.36%
FTSE 100 (FTSE)	0.48%
STOXX Europe 600	0.85%
Shanghai Composite (SSEC)	0.40%
MSCI Emerging Markets Index	-2.20%
MSCI World Index	0.67%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	1.01%
JSE All Share	1.54%
NSE All Share (NGSE)	2.17%
DSEI (Tanzania)	0.11%
ALSIUG (Uganda)	-0.19%

European stocks increased marginally on optimism of global recovery, following UK’s government plans to gradually ease lockdown over the next three months was approved in parliament.

US stocks edged higher due to gains on technology, healthcare and financial stocks. S&P 500 gained by 1.57%, as investors bet on a recovery that is expected to deliver the fastest economic growth since 1984. As the quarter comes to an end, investors are rebalancing their portfolios by buying stocks that stand to benefit from a growing economy.

On the regional front, Nigeria’s NSE all share increased by 2.17% after the government announced the adoption of a new flexible exchange rate policy for official transactions in a major foreign exchange policy shift, thus suggesting the third devaluation of the Naira within a year.

On the global commodities markets, Crude Oil WTI closed the week low by 0.73% and the ICE Brent Crude increased marginally by 0.06%. Gold futures prices decreased by 0.54% to settle at $1,732.30.

Week’s Highlights

• Kenya’s trade deficit increased by 4% to 106.4 billion in January 2021 compared to 102.3 billion in January last year as imports started to go up after months of decline. The surge in imports bill is largely attributed to higher cost of fuel and lubricants, animal and vegetable oils and manufactured goods. The rising trade gap is likely to renew pressure in the country’s foreign reserves, risking the stability of the shilling’s exchange rate.

• Kenya’s trade agreement with the United Kingdom is now operational after both sides’ officials completed the ratification process, which will feature a phased liberalization on some goods over 25 years. Kenya aims to enhance its market share in the UK by 5% to Kshs 1.1 trillion by 2025 from 39 billion in 2019.

• Office space rent in Nairobi declined 13% to Ksh 1,308 per square foot on average last year, making Kenya’s capital the cheapest among top African cities in the wake of the pandemic. Kinshasa and Accra led with Sh 3,815 and Sh 3,052 per square foot respectively, while Harare came last at Sh 763 per square foot.

• Kenya’s exports to key markets in Africa rose to an eight-year high in 2020 according to provisional international trade data. The value of goods sold to other countries on the continent amounted to Sh243.68 billion, a 9.07% increase from the previous year, and was largely driven by demand in smaller exports destinations in the continent.