This archive report was first published on 15 December 2019.
On December 15, 2019, EFG Hermes Holding predicted that the Central Bank of Kenya (CBK) could cut its benchmark rate by up to one percent by March 2020, sending investors to seek better returns in the stock market.
The CBK's Monetary Policy Committee had recently cut the Central Bank Rate from nine percent to 8.5 per cent, for the first time since May 2018, weeks after the removal of the rate cap. The CBK said the economy was operating below potential, signalling more cuts.
According to EFG Hermes' Yearbook 2020, the CBK's decision to cut its policy rate by 50 basis points at its final 2019 meeting had added to the positive sentiment after the rate cap repeal. The firm believes monetary easing will continue to early 2020.
'Our inflation expectations lead us to think the CBK could cut its policy rate by another 50-100 basis points by the end of first quarter 2020. Local institutions have remained invested in fixed income for most of 2019, but the impact of the rate cap repeal on local rates and monetary easing could force more local institutional money back into equities next year, in our view,' said EFG Hermes.
The Kenya securities market had suffered from risk averse foreigners' selling offs, low corporate earnings and rate cap handicap. However, this seems to be reversing on anticipation of stronger growth going forward.
Foreigners made an intermittent return to Kenya in 2019 after strong sell-offs in 2018, and much of 2017. 'Year to date foreign buying was at $9.65 million as of October 2019, and we estimate that foreign portfolio investors own 15 per cent of market cap, still below historical highs of 30 percent,' the firm said.
