Kenyan Equities Struggle with Inflationary Pressures
Kenyan equities are facing a challenging outlook, with the NSE20 index likely to maintain its downward trend following a nearly one percent decline on Friday, Pepperstone Daniel Wesonga said in a comment note made available to MarketForces Africa.
The recent inflation data, which showed an increase to 2.8% year-on-year in November, up from 2.7% in October, along with a rise in monthly inflation to 0.3% from 0.2%, signals some pressure on the economy.
Despite this, Kenya’s inflation target remains within the 2.5% to 7.5% range. The market will closely monitor the Central Bank of Kenya’s (CBK) decision on the benchmark lending rate, scheduled for December 5.
After the rate cut in October, the market’s cautious sentiment is expected to persist in the near term. In the medium term, the outlook for Kenyan financial markets remains bearish, as inflationary pressures may limit equity recovery and keep investor sentiment subdued.
In October, nearly half of Kenya’s commercial banks, 17 out of 38, did not lower their lending rates despite pressure from the CBK and the Treasury.
The average lending rate slightly decreased to 16.87% from 16.9% in September, with some banks, including KCB and Co-operative Bank, raising rates.
The CBK’s efforts to reduce borrowing costs are being hampered by high returns from government securities and rising non-performing loans (NPLs), which could further constrain growth in the financial sector. This mixed response to rate adjustments may weigh on the banking sector and the economy.
Although discussions between the CBK and bank executives continue, aiming to support private sector credit, the slow pace of credit growth, reaching a 22-year low in September, remains a concern.
Expectations for another rate cut could help ease borrowing costs, but the financial market outlook remains cautious in the near term, with potential for moderate recovery in the medium term if credit conditions improve, Wesonga said. #Kenyan Equities Struggle with Inflationary Pressures
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