Markets

Tight US monetary policy set to affect Kenya, warns IMF

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Kenya’s market has in recent years seen an increase in foreign capital inflows. PHOTO | FILE

The International Monetary Fund (IMF) says Kenya is likely to feel the effect of tighter monetary policy in the US due to its increased integration with international financial markets.

The US is expected to further raise its Federal Reserve rate this year following the 0.25 per cent hike in December, which would result in US financial assets becoming more attractive to investors leading to capital flight from smaller markets.

Kenya’s market has in recent years seen an increase in foreign capital inflows, mainly through the equities and fixed income segments, especially during the period of the quantitative easing programme in the US — which has ended.

“The faster than expected tightening of financial conditions (in the US) is a factor, and it could be a negative for countries like Kenya that are increasingly integrating into global financial markets,” said IMF chief of world economic studies division Oya Celasun in a briefing.

Since 2012, the NSE has recorded net foreign inflows amounting to $825 million (Sh85.7 billion).

The IMF official, however, said that the stronger US economic growth can benefit smaller economies like Kenya by increasing trade opportunities.