Kenya’s financial markets outlook

The Central Bank of Kenya's Monetary Policy Committee (MPC) maintained the Central Bank Rate (CBR) at 8.75 percent following its meeting on Monday.

The MPC meeting took place against the background of a weak global growth outlook, the decline in global commodity prices, easing inflationary pressures, geopolitical tensions, and persistent uncertainties, and measures taken by authorities to address these developments.

During the meeting of the European Central Bank (ECB) Governing Council in December 2022, it was noted that financial markets had shifted from inflation concerns to expectations that central banks worldwide would slow down, halt and ultimately reverse interest rate hikes.

These developments had occurred in an environment in which news about the Euro area economy had turned more positive.

The market conditions remained challenging as uncertainty about monetary policy and volatility in market interest rates continued to be high, amid low liquidity and collateral scarcity.

With fresh volatility reported last week, the Euro could extend its gains against the US dollar, which is currently gripped by sentiments of a less aggressive rate hike by the Fed. EUR/USD hit 1.0900 on the expected move from ECB.

A strong dollar emerged temporarily last week as it gained on recession speculations but has been dampened by expectations of a slower pace on rate hikes.

Crude oil prices are hovering around an 8-week peak as investors assess demand.

Oil prices inched higher last week with the expectation that rising demand from China could see prices make a full recovery from the December drop caused by the European Union (EU) sanction of movement by sea of Russian oil.

Since the opening of the Chinese economy, oil prices have rebounded and have posted back-to-back weekly gains as observed last week.

The US West Texas Intermediate (WTI) and Brent are both at crucial price levels as the market continues to observe supply and demand concerns which may influence further price movements.

The decisions of the MPC in Kenya, the US FOMC, and the ECB going forward are likely to set the tone for the financial markets in Kenya and around the globe as investors respond to the emerging dynamics.

The direction of the Russia-Ukraine war is expected to continue affecting supply chains and oil prices, depending on geo-political factors, especially actions taken by the US, the EU, and major European nations.