Foreign Exchange Reserves

The usable foreign exchange reserves stood at USD 7,022 million (3.70 months of import cover). This falls short of CBK’s statutory requirement to endeavour to maintain at least 4.0 months of import cover as well as the EAC region’s convergence criteria of 4.5 months of import cover.

Currency

The Kenyan Shilling appreciated against the Dollar, the Sterling Pound and the Euro to exchange at KES 132.92, KES 167.96 and KES 144.03 respectively. The observed appreciation against the Dollar is attributed to the increased foreign inflows.

Liquidity

Liquidity in the money markets tightened, with the average inter-bank rate increasing from 13.18% to 13.45%, as tax remittances more than offset government payments. Open market operations remained active.

Fixed Income

T-Bills

T-Bills were over-subscribed during the week, with the overall subscription rate increasing to 102.83%, up from 93.47% recorded in the previous week. The 91-day T-Bill received the highest subscription rate at 291.20% while the 182-day T-Bill and 364-day T-Bill had subscription rates of 40.87% and 89.44% respectively. The acceptance rate decreased by 5.36% to close the week at 83.73%.

T-Bonds

In the secondary bond market, there was a lower demand for the week’s bond offers. Bond turnover decreased by 25.82%, from KES 34.02 billion in the previous week to KES 25.23 billion. Total bond deals increased by 1.89% from 687 in the previous week to 700.

In the primary bond market, CBK released auction results for the re-opened 5-year FXD1/2024/005 and the new 10-year FXD1/2024/010 which sought to raise KES 40.0 billion. The issues received bids worth KES 59.73 billion, representing a subscription rate of 149.33%. Of these, KES 22.61 billion worth of bids were accepted at a weighted average rate of 18.41% and 16.52% respectively.

Eurobonds

In the international market, yields on Kenya’s Eurobonds decreased by an average of 0.32% compared to the previous week, 0.59% month-to-date and 0.91% year-to-date. The yields on the 10-year Eurobonds for Angola also increased while that of Zambia decreased. Below is a summary analysis of performance for individual bonds.

Equities

NASI, NSE 20, NSE 25 and NSE 10 settled 5.74%, 3.02%, 5.13% and 5.49% higher compared to the previous week, bringing the year-to-date performance to 17.06%, 11.02%, 19.00% and 20.61% respectively. Market capitalization also gained 5.74% from the previous week to close at KES 1.68 trillion, recording a year-to-date increase of 17.06%. The performance was driven by gains recorded by large-cap stocks such as Safaricom, KCB, Equity and Co-operative of 10.20%, 6.46%, 6.46% and 6.05% respectively.

The Banking sector had shares worth KES 1.7B transacted which accounted for 66.67% of the week’s traded value. Manufacturing and Allied sectors had shares worth KES 80M transacted which represented 3.15% and Safaricom, with shares worth KES 719.9B transacted represented 28.30% of the week’s traded value.

Top Gainers and Losers in the Equities Markets

Alternative Investments

Global and Regional Markets

The US stock market closed the week in the green zone, boosted by a continued rally and shifting expectations for the Federal Reserve policy. The Fed’s recent signals of delayed rate hikes fueled investor optimism, pushing stock indices to new highs.

The European market closed the week on an upward trajectory, as investors assessed the dovish signals from central banks, particularly the Bank of England. Governor Bailey hinted at potential rate cuts later this year, boosting overall market sentiment.

Asian stocks closed the week in the red zone, pressured by weak corporate earnings in Hong Kong, particularly in the tech sector, which fell 3.5%. Investor sentiment was further dampened by concerns over China’s economic recovery, fueled by rising inflation that hit a 10-month high.

Week’s Highlights

  • The president signed the Affordable Housing Bill 2023 into law. This law provides a 15% tax benefit for employees while establishing the Affordable Housing Levy (AHL) of 1.5% collected by employers. The levy, collected by KRA effective 19th March 2024, will be matched by employers. The contributions go towards the government’s goal of increasing housing affordability. While the Act itself doesn’t change existing taxes, a planned reduction in turnover tax for the informal sector from 3% to 1.5% is expected in a separate bill.
  • KCB has sold 100% of the issued shares of the National Bank of Kenya (NBK) to Access Bank at a 1.25 times book value multiple. This follows KCB Group CEO Paul Russo’s announcement of a successful turnaround strategy for NBK, paving way for this acquisition. The deal strengthens Access Bank’s presence in Kenya, adding to their 2019 acquisition of Transnational Bank. Access Bank has been actively expanding across Africa, with recent acquisitions including Grobank in South Africa, BancABC in Botswana and Mozambique, Diamond Bank in Nigeria and Finibanco Angola.
  • The government has launched Medium-Term Plan IV (MTPIV) 2023–2027, emphasizing a bottom-up economic transformation agenda for inclusive growth. It aims to control inflation, reduce the budget deficit and strengthen foreign reserves. The plan also includes major infrastructure investments with the construction of 600 km of roads, the extension of the standard gauge railway from Naivasha to Kisumu, then to Malaba, the building of 100 dams and the construction of 200,000 affordable housing units annually, potentially creating investment opportunities.
  • Kenya’s DhowCSD platform has been named the winner of Central Banking’s Payments and Market Infrastructure Initiative Award. Launched in July 2023, DhowCSD allows Kenyans to conveniently open and manage Central Securities Depository (CSD) accounts through mobile devices, boosting investor participation by 63% since launch. This award recognizes DhowCSD’s role in modernizing Kenya’s financial infrastructure, facilitating both domestic and cross-border government securities trading and promoting broader accessibility for all Kenyans, including those abroad.
  • Eurozone inflation fell to 2.6% year-on-year in February 2024, marking the lowest rate in three months. However, it remains above the European Central Bank’s target of 2%. Energy prices saw a significant decline of 3.7% compared to a 6.1% decrease in January. Prices increased moderately for food and non-energy industrial goods by 3.9% and 1.6% respectively. Service sector inflation remained unchanged at 4.0%. The core inflation rate, excluding volatile food and energy prices, held steady at 3.1%, its lowest level since March 2022. Additionally, consumer prices rose by 0.6% on a monthly basis in February.
  • The Federal Reserve held interest rates range at a record high of 5.25%–5.5% in March, making the fifth consecutive meeting with no rate adjustments aligning with the market expectations. However, policymakers still plan to cut interest rates three times this year, similar to their December forecast. The Fed revised upwards its GDP growth projections for 2024, 2025 and 2026 to 2.1%, 2.0% and 2.0%  respectively. PCE inflation forecasts remained unchanged for 2024 at 2.4% but were slightly raised for 2025 to 2.2%. The core inflation rate is also expected to be higher in 2024 at 2.6%, with no changes predicted for 2025. Moreover, the Fed projects a lower unemployment rate of 4% in 2024, compared to their earlier December forecast of 4.1%. Projections for 2025 remained unchanged at 4.1%.
  • The People’s Bank of China kept its key lending rates unchanged at the March fixing, as expected. This maintains record lows for both the one-year loan prime rate (LPR) at 3.45% and the five-year rate at 3.95% for mortgages, despite facing challenges from a weak property sector and low consumer confidence. The PBOC seeks to stimulate economic growth while managing inflation and preventing excessive liquidity in the financial system. Notably, recent actions include draining cash from the system and signalling potential future cuts to banks’ reserve requirements.
  • The HCOB Flash Eurozone Composite PMI increased to 49.9, exceeding expectations of 49.7 and marking a nine-month high. Service sector output grew for the second month in a row, offsetting a continued, but slower, decline in manufacturing. New order declines eased to a 10-month low, backlogs fell at the weakest pace in nine months and employment showed modest growth. Price pressures eased, with input cost inflation hitting a three-month low and selling price inflation cooling for the first time in five months. Additionally, business confidence has strengthened to its highest level since February 2023.

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