Weekly commentary – 14th February 2025

Foreign Exchange Reserves

The usable foreign exchange reserves increased by 1.68% to USD 9,374 million (4.8 months of import cover). This remains above the 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 depreciated against the Dollar, the Sterling Pound and the Euro to exchange at KES 129.22, KES 161.14 and KES 134.22 respectively. The observed depreciation against the Dollar is attributed to a high demand for the currency and reduced foreign inflows.

Liquidity

Liquidity in the money markets increased, with the average inter-bank rate decreasing from 10.90% to 10.54%, as government payments more than offset tax remittances. Remittance inflows totaled $427.38 million in January 2025, a 4.04% decrease from $445.39 million in December 2024 and a 3.63% rise from $412.41 million in January 2024. Open market operations remained active.

Fixed Income

T-Bills

T-Bills remained oversubscribed during the week, though the overall subscription rate decreased to 184.40% from 296.60% in the previous week. The 182-day T-Bill received the highest subscription rate at 236.34%, while the 91-day T-Bill and 364-day T-Bill had subscription rates of 63.16% and 181.05% respectively. The acceptance rate decreased by 32.30% to close the week at 56.82%.

T-Bonds

In the secondary bond market, there was a lower demand for the week’s bond offers. Bond turnover decreased by 19.66% from KES 38.91 billion in the previous week to KES 31.26 billion. Total bond deals decreased by 15.22% from 690 in the previous week to 585.

In the primary bond market, CBK released auction results for the re-opened IFB1/2022/014 and IFB1/2023/017 infrastructure bonds which sought to raise KES 70.0 billion. The issues received bids worth KES 193.90 billion, representing a subscription rate of 277%. Of these, KES 130.81 billion worth of bids were accepted at weighted average rates of 13.98% and 14.28% respectively.

Eurobonds

In the international market, yields on Kenya’s Eurobonds increased by an average of 0.12% compared to the previous week, but decreased by 0.23% month-to-date and year-to-date. The yields on the 10- year Eurobonds for both Angola increased, while that of Ivory Coast decreased.

Equities

NASI, NSE 20, NSE 25 and NSE 10 settled 1.13%, 1.29%, 1.34% and 1.06% higher respectively compared to the previous week, bringing the year-to-date performance to 4.56%, 7.97%, 2.83% and 2.05% respectively. Market capitalization also gained 1.13% from the previous week to close at KES 2.06 trillion, recording a year-to-date increase of 4.55%. The performance was driven by gains recorded by large-cap stocks such as Stanbic, Stanchart and NCBA of 4.53%, 3.76% and 3.32% respectively.

The Banking sector had shares worth KES 648M transacted which accounted for 32% of the week’s traded value. Manufacturing & Allied sector had shares worth KES 83M transacted which represented 4% and Safaricom, with shares worth KES 1B transacted, represented 51% of the week’s traded value.

Alternative Investments

Global and Regional Markets

Global and Continental Markets

The US stock market closed the week on an upward trajectory, as gains in the consumer goods, telecoms and basic materials sectors led shares higher.

European stock markets closed the week in the green zone, as investors cheered upbeat earnings from German industrial giant Siemens.

Asian stock markets closed the week higher, as technology stocks in Asia also rose amid persistent hopes that artificial intelligence will continue to underpin the sector in the coming years.

On the global commodities markets, Crude Oil WTI and ICE Brent Crude closed the week 0.37% lower and 0.11% higher at $70.74 and $74.74 respectively. Gold futures prices settled 0.45% higher at $2,900.70.

Week’s Highlights

• The National Treasury gazetted revenue and net expenditures data for the the seventh month of the FY 2024/25, ending 31st January 2025. Total revenue collected amounted to KES 1,351.68 billion, representing 46.33% of the original KES 2,920 trillion target. This was 20.57% lower than the projected KES 1,701.70 billion for the period. Total expenditure reached KES 1,994.81 billion, which was 46.16% of the original estimate, resulting in a fiscal deficit of KES 643.13 billion. To finance this deficit, the government borrowed KES 643.16 billion, with domestic and external borrowings constituting 82.62% and 17.38% respectively.
• The Energy and Petroleum Regulatory Authority (EPRA) released its latest monthly statement on the maximum retail prices of petroleum products, effective from 15th February to 14th March 2025. Pump prices for super petrol, diesel and kerosene remain unchanged at KES 176.58, KES 167.06 and KES 151.39 per litre, respectively. Although an increase was anticipated, prices have remained stable despite a spike in international oil prices in early January, driven by geopolitical factors. Sanctions imposed on Russian petroleum products by the outgoing US administration have not been lifted, exacerbating global supply disruptions.
• Actuarial Services E.A. Limited 1113 Kayahwe Rd, Off Galana Rd, Kilimani, P. O. Box 10472 – 00100 NAIROBI, KENYA Tel. +254 202 710 028 / Cell: +254 111 037 100 / +254 708 710 028 / +254 785 710 028 Office Email: info@actserv-africa.com Website: www.actserv.co.ke Morgan Stanley has added Standard Chartered Bank Kenya to the MSCI Frontier Markets Index and HF Group to the MSCI Frontier Markets Small Cap Index, effective 28^th February 2025. No Kenyan companies were removed in this review. HF Group’s share price has surged 77.8% year-to-date, driven by an oversubscribed rights issue. Kenya’s representation in MSCI includes Safaricom (40.9%), Equity Group (28.2%), KCB (19.1%), Co-op Bank (6.7%) and EABL (5.1%). MSCI, which reviews its indices quarterly in February, May, August and November, adjusts its constituents to reflect market changes. Globally, 13 companies were added and 4 removed, with Morocco experiencing the most adjustments.
• KCB Bank has lowered its base lending rate from 15.6% to 14.6%, while Co-operative Bank reduced its rate from 16.5% to 14.5%, following the Central Bank of Kenya’s decision to cut the benchmark interest rate to 10.75%. The adjustments aim to boost credit growth, particularly for micro, small and medium-sized enterprises (MSMEs). Despite the central bank reducing the benchmark rate from 13% to 10.75% since August 2024, commercial banks have been slow to lower lending rates due to the high cost of existing deposits. Additionally, the central bank has cut the Cash Reserve Ratio by 100 basis points to 3.25% to encourage lending and plans to conduct on-site inspections to ensure compliance with the new rates.
• The US annual inflation rate rose to 3% in January 2025 from 2.9% in December 2024, surpassing expectations. Energy prices increased by 1% year-on-year, marking the first rise in six months, mainly due to gasoline, fuel oil and natural gas. Used car and truck prices rebounded and transportation costs accelerated. Food inflation remained steady at 2.5%, while shelter inflation eased to 4.4%. On a monthly basis, the Consumer Price Index (CPI) increased by 0.5%, driven by a 0.4% rise in shelter costs. Annual core inflation unexpectedly climbed to 3.3%, with monthly core inflation rising to 0.4%.
• The British economy grew by 1.5% year-on-year in December 2024, marking its strongest expansion since October 2022. This followed an upward revision of November 2024’s growth to 1.1% and exceeded the forecast 1% increase. From 1998 to 2024, the United Kingdom’s monthly GDP growth averaged 1.85%, peaking at 29.9% in April 2021 and hitting a record low of -24.5% in April 2020.
• 5 The Eurozone’s annual GDP growth rate remained steady at 0.9% in the fourth quarter of 2024, unchanged from the previous period and matching the preliminary estimate. This marked the fastest expansion since early 2023, supported by lower borrowing costs and easing inflationary pressures. Among the bloc’s largest economies, Spain recorded the strongest growth at 3.5%, followed by the Netherlands at 1.8%, France at 0.7% and Italy at 0.5%. In contrast, Germany, the Eurozone’s largest economy, continued to contract, declining by 0.2%.