The Monetary Policy Committee (MPC) retained the benchmark rate at 13% during its 5th June 2024 meeting, noting that its previous measures have lowered overall inflation to the central bank’s mid-point target range of 5%, stabilised the exchange rate and anchored inflationary expectations. Additionally, CBK narrowed the interest rate corridor and adjusted the discount window rate, indicating a potential path for future rate cuts.
Inflation decreased to 4.64% in June from 5.14% in May. This was primarily attributed to lower fuel prices. The food and non-alcoholic beverages index edged up 0.7%, driven by rising food prices. Despite a drop in gas and kerosene prices, the housing, water, electricity, gas and other fuels index increased by 0.4%, mainly due to an increase in electricity prices. Notably, the transport index decreased by 0.2%, driven by a decrease in petrol and diesel prices.
The National Treasury tabled the Fiscal Year (FY) 2024/2025 budget to parliament for approval. This budget outlines the government’s spending plan for the period starting Ist July, 2024, to 30th June, 2025. Focusing on fiscal consolidation, the budget projects a 13.23% increase in revenue, a 5.08% decrease in overall expenditure and a substantially lower deficit of Kshs 514.7 billion compared to the previous year. This strategy aims to manage rising debt levels without compromising essential services.
The government withdrew the Finance Bill 2024 in response to public concerns, which aimed to raise Ksh 346 billion. To address the resulting budget gap for the fiscal year 2024/25, the National Treasury will cut spending across all sectors while prioritizing funding for essential services. Notably, the president assented to the Appropriations Bill 2024 on 28th June, 2024, to ensure continuity of government operations. The National Assembly will consider the president’s decision on the Finance Bill.
The Central Bank of Kenya (CBK) licensed 19 more digital lenders, bringing the total to 58. This follows a surge of over 550 applications since the licensing process began in March 2022. The regulations aim to ensure consumer protection, assess business models and vet leadership in this fast-growing industry. The first round of licenses went out in March 2023, with Lipa Later, Fortune and Zillions Credit among the initial approvals. New additions include Mogo Auto, ED Partners Africa and Ismuk.
US GDP grew at a 1.4% annualized rate in the first quarter of 2024, a modest upward revision from the previous estimate of 1.3%. This remains the slowest growth since the contractions in the first half of 2022. The revision reflects stronger performances in non-residential investment, comprising construction, equipment and intellectual property. The residential investment also increased. Exports grew faster than expected, while imports declined. Moreover, consumer spending slowed more than anticipated, driven by weaker demand for both goods and services.
UK economy grew 0.3% year-on-year in the first quarter of 2024, exceeding the initial estimate of 0.2% and marking a rebound from the previous quarter’s decline. This upward revision is primarily driven by the services sector, which grew by 0.4%, stronger than previously anticipated. Production also saw a modest recovery, increasing 0.3% after a decline in Q4 2023. However, construction remained negative, although the decline was less severe than expected. While public spending increased, household consumption, business investment, exports and imports all declined.
The People’s Bank of China (PBoC) kept key interest rates unchanged at their June fixing, as anticipated by markets. The one-year Loan Prime Rate (LPR), a crucial benchmark for loans, remained at 3.45%. The five-year LPR, used for mortgages, also held steady at 3.95% after a record cut in February. These rates are at historic lows, reflecting China’s fragile economic recovery and fueling calls for additional stimulus from Beijing. Notably, the PBoC maintained a medium-term lending rate of 2.5% for the 10th month in a row while draining a net CNY 55 billion from the banking system to avoid excessive liquidity.
ECONOMIC INDICATORS
Foreign Exchange Reserves
During the month, the usable foreign exchange reserves increased by 11.83% to settle at $7.80 billion (4.10 months of import cover). This was above the CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover but fell short of EAC region’s convergence criteria of 4.5 months of import cover.
Currency
The Kenyan Shilling appreciated against the USD, the Sterling Pound and the Euro by 0.54%, 1.07% and 1.43%, exchanging at Kshs 129.53, Kshs 163.90 and Kshs 138.87 respectively at the end of the month, from Kshs 130.23, Kshs 165.68 and Kshs 140.89 in the previous month. The observed appreciation against the Dollar is attributed to increased foreign inflows.
Inflation
The overall year-on-year inflation slightly decreased to 4.64% in June from 5.14% in May. This was primarily driven by lower fuel prices.
Liquidity
During the month, liquidity increased as a result of government payments which more than offset tax remittances. The average inter-bank rate decreased from 13.57% to 13.14%. The volume of inter-bank transactions increased from Kshs 19.98 billion to Kshs 24.10 billion. Commercial banks excess reserves decreased from Kshs 15.70 billion to Kshs 12.80 billion.
FIXED INCOME
T-Bills
T-bills recorded an overall subscription rate of 84.42% during the month of June, compared to 153.26% recorded in the previous month. The performance of the 91-day, 182-day and 364-day papers stood at 285.16%, 53.33% and 35.22% respectively. On a monthly basis, yields on the 91-day, 182-day and 364-day papers increased by 0.14%, 0.94% and 0.51% to 15.98%, 16.76% and 16.79% respectively.
T-BILLS
T-Bonds
During the month, T-Bonds registered a total turnover of Kshs 97.28 billion from 2,522 bond deals. This represents a monthly decrease of 18.61% and 15.17% respectively. The yields on government securities in the secondary market decreased during the month of June.
In the primary bond market, CBK re-opened FXD1/2024/10 and FXD1/2008/20 bonds with a 16.00% and 13.75% coupons respectively, seeking to raise Kshs 30.0 billion. The Central Bank also re-issued FXD1/2023/02 bond through a tap sale which seeks to raise Ksh 20 billion with 16.97% coupon.
The CBK released auction results for the re-opened 2-year FXD1/2023/002 and 3-year FXD1/2024/003 which sought to raise KES 30.0 billion. CBK also released auction results for the re-opened FXD1/2023/005 and FXD1/2023/010 which sought to raise KES 30.0 billion. Additionally, CBK released auction results for the re- opened FXD1/2023/002, FXD1/2024/003, FXD1/2023/005 and FXD1/2023/010 through a tap sale which sought to raise KES 20.0 billion.
In the international market, yields on Kenya’s Eurobonds increased by an average of 98 basis points.
EQUITIES
During the month, market capitalization lost 3.09% to settle at Kshs 1.71 trillion. Total shares traded increased by 10.32% to 562.23 million shares while equity turnover also decreased by 68.73% to close at Kshs 5.02 billion. On a monthly basis, NASI, NSE 25, NSE 20 and NSE 10 settled 3.09%, 3.39%, 4.55% and 3.83% lower. The performance was as a result of losses recorded by large cap stocks such as KCB, EABL, Co-operative Bank and Safaricom of 12.10%, 7.12%, 5.93% and 3.35% respectively. This was however mitigated by the gains recorded by Standard Chartered and Stanbic of 4.02% and 3.63% respectively.
ALTERNATIVE INVESTMENTS
The derivatives market, over the month, recorded a turnover of Kshs 29.16 million with 86 contracts, which was an increase from Kshs 10.41 million with 107 contracts recorded in the previous month.
I-REIT market, recorded no activity over the month.
The ETF market, recorded no activity over the month.
GLOBAL AND REGIONAL MARKETS
Global Markets
Monthly Change
YTD Change
S&P 500
3.47%
15.13%
STOXX Europe 600
-1.30%
6.88%
Shanghai Composite (SSEC)
-3.87%
0.17%
MSCI Emerging Market Index
3.55%
6.01%
MSCI World
1.93%
10.81%
Regional Markets
Monthly Change
YTD Change
FTSE ASEA Pan African Index
15.50%
315.22%
JSE All Share
3.58%
5.25%
NSE All Share (NGSE)
0.76%
31.67%
DSEI (Tanzania)
-2.39%
14.33%
ALSIUG (Uganda)
-5.30%
18.10%
Global markets were volatile during the month. In the US, the S&P 500 and the Dow Jones indices surged by 3.47% and 1.12% respectively, as investors assessed higher-than-expected S&P Global PMIs. Additionally, investors remained upbeat, keeping a close eye on upcoming key indicators like the Bureau of Labor Statistics Jobs Report, the Job Openings and Labor Turnover Survey (JOLTS) and the Institute for Supply Management Purchasing Managers Index (PMI), along with the Federal Open Market Committee (FOMC) minutes, to gauge the state of the economy and potential monetary shift in monetary policy. In Europe, the STOXX Europe 600 and UK’s FTSE 100 indices edged 1.30% and 1.34% lower, as investors digested the European Central Bank’s cautious stance on interest rates. The ECB signaled a delay in potential rate cuts, emphasizing the need for further assessment of inflation and economic trends. In Asia Pacific, the Shanghai Composite (SSEC) index lost 3.87%, pressured by the EU’s new tariffs on major Chinese electric vehicle makers. Concerns about China’s uneven economic recovery and the absence of robust stimulus measures from the People’s Bank of China (PBOC) further weighed down the market.
On a regional front, markets had a mixed performance during the month. The FTSE ASEA Pan African index, representing the overall African markets gained 15.50% from June. South Africa’s JSE All Share index and Nigeria’s All share index also increased by 3.58% and 0.76% respectively. Tanzania’s DSEI and Uganda’s All Share index all decreased by 2.39% and 5.30% respectively.
On the global commodities markets, oil future indices edged higher, as investors awaited the upcoming OPEC+ meeting. The group is expected to assess market conditions and member compliance with production quotas but likely maintain current output levels. This aligns with comments by Russia’s Deputy Prime Minister, who emphasized production cuts over exports for the second quarter to meet OPEC+ targets. Crude Oil WTI futures and ICE Brent Crude Oil settled 6.27% and 4.04% higher to close at $83.17 and $87.00 respectively.On the global commodities markets, oil futures indices edged higher, fueled by expectations of higher demand during the summer driving season. This bullish sentiment was further bolstered by anxieties over potential supply disruptions due to the escalating conflict between Israel and Iranian-backed Hezbollah. Crude Oil
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