Weekly Commentary – 28th January 2022

Foreign Exchange Reserves

The CBK’s usable foreign exchange reserves remained adequate at USD 8,287 million (5.07 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 depreciated against the Dollar, but appreciated against the Euro and the Sterling Pound. The depreciation against the dollar is attributable to increased dollar demand from oil and energy importers.

	Week Before	Week After
Dollar	113.52	113.57
Euro	128.74	127.37
Sterling Pound	154.30	152.60

Liquidity

Liquidity in the money markets tightened, supported by tax remittances which partly offset government payments. Open market operations remained active.

	Week Before	Week After
Interbank rate	4.68%	4.72%
Interbank volume (billion)	18.77	10.80
Commercial banks’ excess reserves (billion)	17.10	8.00

Fixed Income

T-Bills

The T-Bills remained over-subscribed, although the subscription rate declined. The decline in subscription is attributable to tightened liquidity in the money markets. Investors however preferred the 364 day paper which offered higher yields.

T-Bill	Yield (% Rate)		Subscription Rate
	Week Before	Week After	Week Before	Week After
Overall			119.45%	107.94%
91 day	7.33%	7.34%	48.14%	37.67%
182 day	8.07%	8.11%	123.13%	53.45%
364 day	9.51%	9.54%	144.29%	190.55%

T-Bonds

The bonds market had high demand for the months bond offers. Bonds turnover increased to Kshs 12.53 billion from Kshs 9.60 billion recorded in the previous week.

In the primary bond market, the Treasury has issued a prospectus for an infrastructure bond IFB1/2022/19 as it seeks to raise Kshs 75 billion to fund infrastructure projects in the current fiscal year.

In the international market, yields on Kenya’s Eurobonds rose marginally by an average of 2.6 basis points. However, the yield on the 10-year Eurobonds for Ghana and Angola declined.

Equities

NASI, NSE 20 and NSE 25 declined by 2.20%, 0.91% and 2.09% respectively. Market capitalization also decreased by 2.20% to 2.51 trillion. The performance was driven by losses recorded by large-cap stocks. Top losses were recorded in Safaricom Plc, Bamburi, Equity Group Plc and NCBA Group which decreased by 3.3%, 3.0%, 2.4% and 1.6% respectively.

The Banking sector had shares worth Kshs 913M transacted which accounted for 34.81% of the week’s traded value, Manufacturing & Allied sector had shares worth 522M transacted which represented 19.93% and Safaricom with shares worth Kshs 1.1B transacted, contributed 19.93%.

Top Losers	W-o-W
Car & General	-21.17%
Sanlam Kenya	-8.06%
Eaagads	-4.71%
Britam Holdings	-3.84%
Nairobi Securities Exchange	-3.61%

Alternative Investments

	Week Before	Week After	% Change
Derivatives Turnover (million)	1.40	4.57	226.95%
Derivatives Contracts	13	27	107.69%
I-REIT Turnover	0.19	0.31	62.14%
I-REIT Deals	40	33	-17.50%

Global and Regional Markets

Global Markets	W-o-W
S&P 500	0.77%
Dow Jones Industrial Average (DJI)	1.34%
FTSE 100 (FTSE)	-0.37%
STOXX Europe 600	-1.87%
Shanghai Composite (SSEC)	-4.57%
MSCI Emerging Markets	-4.27%
MSCI World Index	-0.64%

Continental Markets	W-o-W
FTSE ASEA Pan African Index	-0.28%
JSE All Share	-1.71%
NSE All Share (NGSE)	0.54%
DSEI (Tanzania)	1.23%
ALSIUG (Uganda)	-0.68%

U.S stocks closed the week high as investors turned their eyes toward corporate earnings and ignored geopolitical turmoil and Federal Reserve tightening concerns. Economic data helped ease inflation fears, with U.S. data showing consumer spending and labor cost rises were weaker than expected in December.

European stocks closed the week lower, following the recent hawkish turn by the Federal Reserve that it is likely to raise rates as many as five times this year, starting in March.as well as concerns over Russia’s intentions for Ukraine weighing on sentiment despite some strong corporate news.

Asia Pacific stocks also closed the week low as investors digested the remarks of the U.S. Federal Reserve Chairman Jerome Powell, signaling an interest rate hike as soon as March 2022, with more to follow.

On the global commodities markets, Crude Oil WTI closed the week high with 3.19% and the ICE Brent Crude increased by 1.87%. Gold futures prices declined by 2.40% to settle at $1,787.80.

Week’s Highlights

• The Central Bank of Kenya’s monetary policy committee met during the week and maintained the lending rate at 7% for the twelfth consecutive time as the economy continues to recover. This has spared consumers any increases on the cost of loans at the beginning of the year after the Monetary Policy Committee (MPC) send its signal to banks to hold interest rates steady.

• Kenya’s trade deficit in the eleven months to November 2021 widened to a new high of Ksh1.24 trillion, as a result of the surging fuel and industrial goods import bill. Total imports rose by 29% to Kshs1.91 trillion, outperforming exports which increased by 15% to Kshs672.6 billion. The deficit, which stood at 5.4% of the GDP was higher than the Central Bank’s projection of 5.2% of the GDP. The widening trade deficit negatively impacts the country’s foreign exchange reserves, thus piling pressure on the shilling.

• Commercial banks increased their lending to companies and individuals increased to a ten-months high in December 2021 to 8.6%, signaling economic recovery in various sectors from the pandemic-driven slump. However, this still remains below the central bank’s target rate of 12% – 15%, deemed adequate to support economic development. The central bank is optimistic that the state’s ongoing stimulus program would sustain and boost economic recovery in the new year.

• Increased number of Omicron variant cases of Covid-19 in China poses a serious shortage of commodities globally in the next few weeks, with Africa expected to be the most affected region, due to partial closure of a number of ports in China. Ships are looking to avoid Covid-induced delays in China causing growing congestion at the world’s biggest container ports.

• Dubai has lifted ban imposed on all inbound and transit passenger flights from Kenya since last year, offering relief to passengers between the two destinations. This comes after Kenya lifted the ban on inbound transit passenger flights from Dubai that was imposed two weeks ago.

• Kenyan banks are expected to decelerate their lending activities in the first half of the year as the 2022 general elections draw near. A research by Renaissance capital shows political risks has an impact on the performance of banks, but a quick rebound is expected after the elections.

• The Central Bank of Kenya, in the latest monetary policy committee briefing, has retained its position on the unrestricted use of cryptocurrencies, and has issued a warning to local banks against dealing with cryptocurrencies or transacting with firms dealing with cryptocurrencies.