MACRO-ECONOMIC INDICATORS
- Kenyan Shilling Soars: 18.7% Surge q/q, 0.4% y/y against the dollar in 1Q24 – a first quarter fueled by sentiment and behavioral economics
- Secondary bond market sizzles: Turnover skyrockets to KES 459.30bn in 1Q24, up from KES 142.72bn in 4Q23
- Kenyan Eurobond yields dip, normalizing risk pricing post buyback
- In 1Q24, the government recorded a net domestic borrowing of KES 197.68bn, having borrowed KES 730.21bn and redeemed KES 532.53bn
GDP Growth
The Kenyan economy is estimated to have grown by 5.8% in 1Q24, 30bps higher than the 5.5% growth recorded in 1Q23, as shown below:
The growth will be driven by;
- A resilient services sector set to expand by 6.8% compared to 6.2% in 1Q23. The growth is projected to have been supported by robust growth in the financial services and insurance, transport, as well as wholesale and retail trade sectors,
- A strong recovery in agriculture amidst a relatively favourable weather condition, and,
- A Rebound in the industry sector supported by continued recovery in the manufacturing sector.
Inflation
The average y/y inflation for 1Q24 stood at 6.3%, 50bps and 280bps lower than the 6.8% and 9.1% average rate recorded in 4Q23 and 1Q23, as shown below;
The slower growth in the general price levels was largely due to the decelaration in both food & fuel inflation which led to a slow down in the food and transport indices as shown below;
| INDEX | WEIGHT | 1Q23 | 1Q24 |
| Food & non-alcoholic Beverages | 32.9% | 13.2% | 6.9% |
| Housing & other Utilities | 14.6% | 7.5% | 8.7% |
| Transport | 9.6% | 13.0% | 10.7% |
The housing and other utilities index remained sticky on a faster growth in electricity prices, both small scale and industrial.
Purchasing Manager’s Index (PMI)
In 1Q24, the private sector business environment exhibited slight expansion with the Stanbic PMI slightly surpassing the 50 mark to an average of 50.3 from 46.9 and 49.3 in 4Q23 and 1Q23, respectively.
The improvement was largely on the back of the reduced inflationary pressures during the quarter which translated to lower input costs and overall improvement in demand. See the chart below;
Central Bank Rate (CBR)
The Monetary Policy Committee met once during the quarter and raised the CBR by 50bps to 13.0% citing the need to anchor inflation towards the midpoint of the target range; (2.5% – 7.5%). See below the movement of the rate over the years;
We opine that 1Q24 may be the boarderline from which we are unlikely to see major rate hikes going forward.
Inflation is rapidly approaching the midpoint and the shilling continues to strengthen against the dollar, hence supporting price stability.
Currency
In 1Q24, the Kenyan shilling recorded an 18.7% q/q and 0.4% y/y gain against the dollar. The steep appreciation in over a decade during the first quarter was mainly a behavioral economics and sentiment play supported by;
- The 2024 Eurobond buyback,
- Excellent performance of the new Eurobond issuance and the February infrastructure bond,
- Panic selling of dollars on uncertainty of the shillings equilibrium point.
Kenya’s forex reserves ended 1Q24 on a higher note but remained below the statutory requirement of four months of import cover (MIC). The reserves stood at USD 7.09bn (3.8 MIC), a 7.2%q/q and 8.2% y/y increase. The increase was largely on external financing as well and possible interventions from the foreign exchange market. See below a chart showing the performance of the shilling vs FX reserves;
The shilling appreciated against all major relevant currencies. See below a summary of the performance;
Diaspora Remittances
As of February 2024, the cumulative diaspora remittances over the last quarter stood at USD 1.17bn, a 15.3% increase from USD 1.03bn recorded over the same period in 2023. See below the chart;
Kenya’s Domestic Debt
As of 22nd March 2024, treasury bonds accounted for 88.9% of Kenya’s domestic debt. The country’s domestic debt stock increased by 3.6% q/q and 15.2% y/y to KES 5.23tn, from KES 5.05tn and KES 4.54tn. In 1Q24, the government recorded a net domestic borrowing of KES 197.68bn, having borrowed KES 730.21bn and redeemed KES 532.53bn. See below a summary of Kenya’s domestic debt;
Banking institutions remain the largest holders government’s domestic debt holding 45.89% as of 22nd March 2024. Pension funds follow accounting for 29.3%, 620.0bps lower than the amount held at the end of 2023. See below the country’s domestic debt by holder;
FIXED INCOME MARKET
Performance
T-Bills
In 1Q24, Treasury bills were oversubscribed with the average subscription rate coming in at 137.8%, up from 128.6% recorded in 4Q23. Demand for the 91-day paper persisted, recording an overall performance rate of 522.1%, down from 602.7%, in the previous quarter. The overall subscription was weighed down by sub par performance of the 182-day and 364-day papers which recorded a subscription rate of 58.5% and 63.3%, respectively.
Out of the KES 429.86bn worth of bids received, KES 382.10bn was accepted translating to an acceptance rate of 88.9%. See below a summary of the performance;
T-Bonds
Treasury bonds were also oversubscribed with the overall subscription coming in at 275.3%, up from 121.5% in 4Q23. The Central Bank of Kenya reopened and issued two new bonds. Investors interest leaned mostly towards the February infrastructure bond which accounted for 65% of the total bids received during the quarter.
Overall, the government raised KES 334.61bn, translating to a 75.9% acceptance rate. See below a summary of the performance;
Secondary Bond Market
The secondary bond market turnover more than quadrupled to KES 459.30bn in 1Q24, from KES 142.72bn in 4Q23. The q/q increase was mainly on account of significant trades on the February infrastructure bond which fetched the highest tax free coupon (18.5%) at the NSE in recent memory. See below a summary of the performance;
Yields
The yield curve remained inverted in 1Q24 with the yields on government papers increasing by a cumulative 711.5bps q/q.
Short term papers climbed by a cumulative 281.8bps, while medium term papers rose by 301.7bps and the long term papers by 128.1bps. See below the yield curve;
Money Market Liquidity
Liquidity in the money market remained constrained during the quarter with the average interbank rate jumping 183.2bps and 712.2bps to 13.6%, from 11.8% and 6.5% in 4Q23 and 1Q23, respectively.
The jump was mainly attributable to the requirement that the interbank rate tracks the Central Bank Rate which was raised a cumulative 375bps in 2023 and 50bps in
1Q24. See the chart below;
However, the Central Bank maintained its support to liquidity strapped entities having injected more than KES 1.97tn during the quarter, 48.1% higher than the KES 1.33tn injected in 4Q23.
Kenyan Eurobonds
Yields on all Kenyan Eurobonds declined and adjusted to a normal curve suggesting appropriately priced risks. The decline was largely influenced by the Eurobond buyback.
In addition, the National Treasury issued a new Eurobond; KENINT 2031 whose proceeds were used to buyback the June Eurobond. KENINT 2031, has an outstanding principal of USD 1.5bn, a 9.75% coupon rate and an amortized maturity structure, meant to lower the overall costs associated with the bond. See below a summary of the performance;
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