Heavy downpour experienced over the past month has destroyed feeder roads making it difficult for commodities to reach the markets from farm gates. Photo/FILE
Kenya’s inflation grew marginally in May after falling for four consecutive months in a move that looked set to hurt the earnings of investors putting their money on short term government papers.
Official data from the Kenya National Bureau of Statistics indicates that inflation increased 3.9 per cent from 3.7 per cent in April on increased food prices.
The inflation had been slowing steadily since the start of the year, mainly due to heavy rains bolstering food supply and cooling food price inflation.
But the heavy downpour experienced over the past month has destroyed feeder roads making it difficult for commodities to reach the markets from farm gates, leading to a price rally of vegetables and milk and a reversal in the fall of inflation.
At 3.9 per cent, it roughly suggests investors putting their money in the 91 day Treasury bill are at risk of receiving negative returns on their investments.
The latest T-bill auction placed the CBK 91-day paper at 3.99 per cent and 182-day at four per cent, meaning a return of about 10 cent for every Sh100 when measured against inflation.
Debt crisis
With inflation forecast to remain little changed and government paper set to fall further, analysts expect the rate on return on government paper to fall below the inflation rate in coming months.
High liquidity, fewer investment options, and risk aversion by high net worth investors are expected to push investors to place lower bids to allow them get larger allocations on the government paper.
“I see the annualised rate on return on T-Bills being at per with inflation this year,” said a research analyst at an investment bank who spoke on condition of anonymity.
Though food prices are set to remain stable, analysts led by CBK reckon that oil price movements and risks associated with exchange rate volatility due to the Greek debt crisis could erase the gains brought by lower food and electricity prices.
Uncertainty over the direction of the Euro economy has prompted investors to ditch other currencies in favour of the dollar, leading to its strengthening against other currencies.
The dollar has gained three shillings against the shilling since the start of the month to stand at Sh79.80 at the close of trading on Monday.
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