Kenya cuts base lending rate by 0.75%

The East African region has recently witnessed a series of rate cuts, with both Kenya and Uganda taking measures to reign in inflation. Kenya has reduced its interest rates to 12 per cent, while Uganda made a cut of 9.75 per cent. To analyze the impact of these cuts on the markets, Phillip Ssali, Head of Corporate Sales & Global Markets at Standard Bank Group, was interviewed by CNBC Africa. Ssali provided insights into the implications of these rate cuts on the economies and market reactions. The reduction in interest rates is seen as a positive move for the economies. In Kenya, the key considerations for the rate cut were private sector credit growth and quarter-on-quarter GDP growth. The incentive to cut by 75 basis points to 12 per cent aims to stimulate growth in these areas. The initial market reaction was a 50 basis point drop on the short end of the curve overnight into one week, which should ease liquidity conditions. In the medium term, the rate cut is expected to boost private sector credit growth and consequently support economic growth as liquidity conditions improve. The move signals the government and the Central Bank of Kenya's commitment to fostering economic expansion. Turning to Uganda, the rate cut aligns with well-contained inflation and positive quarter-on-quarter GDP and private sector growth. The cuts in both countries are in line with global trends among central banks. While discussing Kenya's future funding prospects, Ssali highlighted two significant developments. The Supreme Court's review of the Finance Act of 2024 and bilateral discussions with the UAE for funding between 1 to 1.5 billion are crucial factors. The outcome of these events will play a vital role in determining Kenya's financial stability moving forward. From a tax perspective, potential amendments to the Finance Act could impact tax revenue collections, posing a challenge that requires innovative solutions to bridge any revenue gaps. Ssali remains cautiously optimistic about the outcomes from these ongoing discussions and negotiations. Shifting focus to Uganda, Ssali mentioned the strong performance of the Uganda shilling, attributing it to factors like a robust coffee crop, investor inflows, and a weakening dollar post-Fed rate cuts. The shilling's appreciating trend is expected to continue, supported by positive seasonality factors. Liquidity in the market remains sufficient, with interest rate cuts signaling a conducive environment for private sector credit growth. The macroeconomic outlook for Uganda is positive, with GDP growth projected at around 6% to 6.5% for the financial year 2024-2025 and a further increase to 7% thereafter. Despite risks such as potential crowding out of the private sector by government borrowing, Uganda's disciplined fiscal approach bodes well for the economy in the short to medium term. Overall, the rate cuts in Kenya and Uganda reflect a strategic effort to stimulate economic growth and maintain financial stability amidst evolving market conditions.