This archive report was first published on 22 September 2021.
The Nairobi Securities Exchange (NSE) is closely tied to global investor sentiment, particularly in the wake of the US Fed meeting on September 22, 2021. This meeting will signal whether the Fed will decide to taper its money injection into the US economy in November.
As a result, market expectations of the first Fed rate hike will be closely watched. Kenya's economy is sensitive to changes in investor perception of emerging and frontier markets, which in turn affects the local market performance.
Recently, the International Monetary Fund (IMF) approved a historic allocation of Special Drawing Rights (SDR) worth USD 650 billion, which has been distributed to IMF member countries, including Kenya. This move aims to boost countries' capacity to navigate the pandemic's devastating effects.
Kenya has received its SDR allocation, contributing to an increase in the country's foreign exchange reserves to USD 9.6 billion, a healthy level equivalent to 5.9 months of import cover. This is above the East Africa region's criterion of 4 months of import cover.
However, international oil prices are significantly lower than in 2011, yet pump prices are at record levels, potentially leading to inflationary pressures. The government's fiscal position has changed in the last decade, partly due to infrastructural projects aimed at opening up the economy and stabilizing debt levels.
Despite inflationary risks, the Central Bank of Kenya (CBK) is expected to keep its policy rate at 7% in its upcoming meeting, as the CBK is likely to prioritize economic stability over short-term inflation concerns.
