Kenyan economy stable despite political uncertainty – Expert

Kenya, a country facing a prolonged period of political uncertainty following the nullification of the August presidential poll, continues to witness stability in its currency and macroeconomic factors. Despite doubts lingering over the constitution of the Independent Electoral and Boundaries Commission (IEBC) and the uncertainty surrounding the opposition party NASA's participation in the upcoming election, the financial markets in Kenya have displayed resilience. Jaron Meyerson, a representative from Rand Merchant Bank, shed light on the current situation and provided insights on the economic outlook. The uncertainty surrounding the readiness of the electoral commission and doubts about the opposition's satisfaction with the election preparations have raised concerns among investors. With the credibility of election results also under scrutiny, the atmosphere in Kenya remains uncertain. However, the financial markets have not reacted significantly to these uncertainties. While there was a slight weakening of the currency and a dip in the equity market post-election announcement, the markets quickly rebounded. Despite the political upheaval, the fixed income market in Kenya continues to attract investors, with high subscription rates for government bonds. However, the issuance of new debt falls short of the required local currency funding, leading to an increased need for debt refinancing in the coming year. The rate cap law poses a challenge to the government's ability to extend the maturity of its debt profile, further complicating the financial landscape. The Central Bank of Kenya's key lending rate remains at 10%, with limited room for adjustments given the prevailing economic conditions. Inflation rates above the target band hamper the central bank's ability to lower rates significantly. However, there is a possibility of rate cuts in the medium term to stimulate the economy, especially in response to external factors like the lingering effects of previous droughts. Looking ahead, the equities market in Kenya faces uncertainty amidst concerns about foreign investment and market valuations. While the market remains attractive in terms of valuations, the perception of the currency being slightly overvalued deters foreign investors. The possibility of a currency correction leading to a weakening of 5 to 10% adds another layer of complexity to the investment landscape. Overall, the Kenyan economy's resilience in the face of political turbulence showcases the underlying strength of the market. Despite the challenges and uncertainties, the financial markets have demonstrated a level of stability that reflects investor confidence in the country's long-term prospects.