KenyaMacroeconomic update

16 November 2022

Whack-a-mole headache

In brief

  • Last Friday, President Dr. William Samoei Ruto made a statement to the effect that local rates will have a ceiling of 10.0%. We view this statement drives the final nail in the coffin, a doubling down to last month’s statement by the new National Treasury Cabinet Secretary (CS) Prof. Njuguna Ndung’u to the effect that domestic bonds will be refinanced with concessional loans.


  • We see heightened risk of fiscal dominance, teeing up the odds of a neutral policy stance in next week’s MPC meeting (CBR currently at 8.25%) despite rising inflationary pressures.


  • Could it be that we are missing the forest for the trees? Trying to make sense of the President’s off-script remarks, it seems like the government wants its affordable housing and roads projects financed partly by pension money.


  • We explore a number of issues that may play out in the maelstrom of the President’s comments. First, this could lead to primary auctions featuring new bonds with coupon rates less than 10.0%.


  • Secondly, liability management operation for KENINT 2024 should be given top priority. A capped tender offer and new issue is the best route but bearing in mind that other African sovereigns are thinking alike, Kenya should explore Samurai bond issuance. This kills two birds with one stone; low interest rates and diversifying the external currency risk.


  • Lastly, and most importantly, the government may consider upping its game with its communication. Less of the open mouth operations for now, please. The President, or the CS, should probably stick to the script, in both the literal and figurative sense. Amidst the current cloud of uncertainty, investors should hide in the comfort of 91-day and 182-day T-bills, currently trading at sub-10.0% levels.

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