East Africa markets watch

Kenya's petroleum sector recently experienced one of the most significant fuel price hikes, prompting concerns about the implications for the economy and market developments across East Africa. Phillip Ssali, the Head of Corporate Sales & Global Markets at Standard Bank Group, shed light on the current situation during an interview with CNBC Africa. The spike in the weighted average cost of imported refined products in Kenya has led to higher fuel prices, which are expected to have an inflationary effect on the economy. As consumers face increased costs at the pump, they may need to adjust their spending priorities, potentially leading to reduced expenditure in other areas. Given that fuel plays a vital role in transportation and logistics, the increased prices could also result in higher costs for goods and services, adding pressure to overall inflation rates. Should the current trends persist, we are likely to see inflationary pressure spreading across various sectors in the economy. Looking ahead, global oil market dynamics play a significant role in shaping the future of fuel prices in East Africa. The recent decision by OPEC countries, including Russia and Saudi Arabia, to extend the production cuts until December has already driven the price of crude oil close to $95 per barrel, the highest level in over a year. If this trend continues into the winter season, when oil demand typically rises, we may witness sustained high oil prices, leading to prolonged periods of elevated fuel prices not only in Kenya but also across the region and globally. Shifting the focus to credit uptake trends and interest rates in East African economies, Ssali highlighted the impact of interest rate movements on credit expansion. In Kenya, a recent uptick in the central bank rate to 10.5% resulted in a decrease in credit uptake by 8.5% to 6.5% from July to August. Similarly, in Uganda, despite a marginal reduction in the central bank rate, credit uptake remained subdued due to persistent concerns regarding the cost of borrowing. The surge in oil prices poses downside risks to inflation, which could influence the decisions of central banks in East Africa regarding interest rates adjustments. As a result, credit growth is expected to remain modest, given the prevailing high-interest rate environment. In the investment landscape, both Kenya and Uganda have witnessed strong investor participation in recent auctions, driven by expectations of inflation changes and market liquidity conditions. In Uganda, interest rates have remained relatively stable, ranging from 12.5% to 16.85%, attracting investor interest in government securities. However, any significant uptick in the yield curve could trigger increased market activity and capital flows. Switching gears to funding freeze developments, Ssali addressed the potential impact on the yield curve in Uganda. Despite ongoing discussions between the government and bilateral funders, the funding freeze is unlikely to cause a drastic shift in the yield curve, as continued dialogue is expected to maintain market stability. Bilateral agreements are anticipated to keep liquidity flowing, ensuring that the central bank and government adhere to set borrowing targets. Overall, the market outlook remains cautiously optimistic, with investors closely monitoring inflation trends and funding dynamics to navigate the evolving economic landscape in East Africa. With challenges such as fuel price volatility and interest rate uncertainties, stakeholders will need to adopt strategic approaches to mitigate risks and seize opportunities in the dynamic market environment.