Kenya’s MPC meeting sparks market jitters ahead of decision

Kenya's Monetary Policy Committee (MPC) meeting scheduled for the 5th of December has sparked market jitters as investors eagerly await the decision. The last MPC in October saw the Central Bank of Kenya cutting rates by 75 basis points from 12.75 per cent to 12 per cent, the most significant cut since the onset of the Covid-19 pandemic. To gain insight into the potential impact on the markets, CNBC Africa engaged in a live discussion with Phillip Ssali, Head of Corporate Sales & Global Markets at Standard Bank Group, Uganda. Ssali provided valuable analysis on the imminent monetary policy decision, shedding light on key factors that may influence the outcome. During the interview, Ssali expressed his expectation of a substantial rate cut by the Central Bank of Kenya, possibly up to 100 basis points, although consensus points to a more conservative 50 basis points reduction. He highlighted three key factors supporting the potential rate cut: contained inflation below the Central Bank's target at 2.8 per cent, stable currency performance against the US dollar, and the necessity to stimulate private sector credit growth and overall economic activity. These factors collectively point towards a conducive environment for a policy decision favoring looser monetary conditions and enhanced business growth prospects. Addressing the anticipation in the market, Ssali noted that if the decision has been adequately priced in, there may not be significant rallies across asset classes immediately following the announcement. However, he emphasized that the policy decision could serve as a leading indicator, fueling improved business conditions and setting the stage for heightened private sector credit growth and consumer demand in the medium term. The interview delved into the recent reconstitution of the MPC committee in Kenya, adding four new members to the board. Discussing inflation trends, which have been on a downward trajectory in Kenya, Ssali cautioned against assuming a fixed tone for the future. He noted that external factors such as global geopolitics and weather patterns could swiftly alter the inflation outlook, prompting policymakers to adapt their stance accordingly. While acknowledging the current support for a rate cut, Ssali emphasized the need for flexibility in responding to potential risk factors. Turning the focus to the Purchasing Managers' Index (PMI) reports for the region, Ssali highlighted positive developments in both Kenya and Uganda. In Kenya, the PMI data indicated a shift towards improving economic conditions, with various sectors showing increased sales and client activity. The outlook for the coming year was cautiously optimistic, supported by manageable cost pressures and positive sentiment among surveyed clients. In Uganda, the PMI figures reflected sustained economic growth momentum across sectors, buoyed by confidence in infrastructure investment and consumer demand. As the discussion concluded, Ssali provided insights into the currency market performance, particularly the Ugandan shilling's resilience against the US dollar. With a year-to-date appreciation of 2.2% and expectations of a stable performance within a defined range until year-end, Ssali outlined key factors such as seasonal agricultural outputs, remittances, and corporate demand dynamics influencing the currency's outlook. In summary, the anticipation surrounding Kenya's upcoming MPC decision underscores the significance of monetary policy in shaping investor sentiment and economic prospects in the region. While market reactions may vary in the short term, the overarching objective remains to foster conducive conditions for sustainable growth and financial stability.