The Kenyan manufacturers had said something about falling consumption (or substitution for cheaper alternatives) and rising inflation as the current prevailing conditions

For various goods that are 'protected' e.g. cement, cigarettes, beer, etc from 'foreign' competition through barriers like tariffs/duties/quotas inflation does hurt them since there creeping inflation on the SUPPLY SIDE.

Example: Higher electricity prices (due to higher thermal generation based on 'expensive' diesel) affects cement production costs.


I always thot that when prices rise normally (not zimbabwe-type rise) people save more cash to buy stuff (cos stuff costs more) and the lack of demand (for say manufactured goods) pushes prices back down, thus back to equilibrium.

There is a MINIMUM level of 'spending' required. If the cost of this basket of goods (food, electricity, clothes) costs more then there is less left to 'save'. You can't 'save' more if stuff costs more.

I'm thinking the reason why inflation is still declining in Kenya to 5% is because that equilibrium has not been met.

The inflation calculation was changed from arithmetic to geometric. Apples to Oranges. Or in Kenya... bananas to oranges...

Great story in BD today about our debts and the stimulus package. IMF thinks that the government should "...stop spending more money than the economy can finance...", but do they think they don't say that the private sector can pick up the 'spending' slack. The current trend is the global trend and we're still missing the targets on our tax revenues.

The stats from the latest weekly bulletin indicate that domestic debt is up 29% with interest payments on this debt up 37% y-o-y. Although T-bills outstanding were up 62% y-o-y T-bonds outstanding were up 26% on T-bonds (which in numbers is a massive Kshs84 bn (net) raised domestically since Dec-08).

IMF further argue that "Kenya's public debt...should be scaled down to a target ratio of about 40% of GDP for it to be sustainable without raising creditors' fears of a possible default." Who are our main creditors? I think it was split 50:50 between foreigners and domestic. Who would be most fearful among them and what would they do if they think we'll default?

Last interesting comment is from a standard bank analyst saying "...there is little risk that the stimulus spending will stoke inflation, adding that weak growth in monetary aggregates should give the CBK the licence to forge ahead with its stimulus spending programmes." I'm sure this is something that has been endlessly debated, who exactly stokes the inflation? The monetary aggregates referred to could be the M1 and M2 aggregates. M1 growth has been weak (compared to previous year) at just over 10% y-o-y as many Kenyans had cut done on their consumption. So maybe it's the higher M1 growth that is needed (such as during the safcom IPO time) for the higher risk of inflation to materialise.

Nothing can be done once the train gains momentum, so we must look at the impact of debt repayments. Investment banks that deal with bonds should well the news given by John Mutua of IEA where he says "...some of the projects built under the stimulus programme will still require a maintenance budget in future, making it harder for treasury to shrink its expansionary budget". This makes perfect sense and makes the future all the more uncertain.

http://www.businessdaily...48/-/6a4x4l/-/index.html

@vvs. You’re quite right. Dropped by my broker today and they told me that retail investors have been trickling in slowly. I guess people are starting to invest again. With you guys watching market prices so closely, it's only a matter of time b4 the young crowd (uni guys) start piling into the market.

The IMF thinks interest rates will rise due to an expected economic recovery but how well is private sector credit really growing? IMF indicated that the third qtr GDP performance was dismal (growing by 0% vs 4.0% & 2.4% in QTR 1 & 2) and shouldn't the warning now prompt investors to anticipate a decline in the stock market.

IMF doesn't advocate for a reduction in the stimulus but wants stakeholders to be watchful of inflation. But then the market basket is expected to be re-weighted next month to include other variables such as the cost of telephony. One would believe their monitoring capability would be severely hampered by this.

The Fund believes high foreign investor participation is contingent on low political risk by way of a smooth constitutional process, but, is this too ambitious given our history and make the portfolio FDI currently driving our market rally more volatile.

Find out more at:

http://www.businessdaily...36/-/6aky0i/-/index.html

Excerpt from a recent World Bank report "...in October 2009 the government adopted a new methodology for measuring inflation in line with international good practice. The new methodology removes the upward bias which was particularly sensitive to volatile food prices.

The new methodology provides a more accurate assessment of prices changes creating more certainty for business and labor...the government has also announced an adjustment in the basket of consumer prices in February 2010, reducing the weight of food in the CPI from 50% to 40%. With this additional adjustment, overall inflation is expected to decline further".

There are two main broad types of methods to aggregate price data. Until October 2009, Kenya has been using the arithmetic mean (linked Carli Index)...KNBS shifted to a weighted geometric mean (Jevons Index). World Bank Report.

Read more:

http://en.wikipedia.org/...of_price_index_formulas

Bob Prechter explains why the Fed's actions are more likely to create an inflation mirage rather than the real thing.

Read more:

http://www.elliottwave.c...0%94Mostly-a-Mirage.aspx

CBR unlikely to be revised upwards as the stimulus is expected to be in place til June 2010. It doesn't need to go done either as banks are liquid. So no changes to CBR or CRR. Inflation is expected to drop next month.

Private sector credit is better thanks to manipulation of govt stats. Govt borrowing to continue unchecked to mop up unwanted liquidity and they'll borrow at lower rates to reduce debt payments.

Incidentally this is all good for the stock market as lower rates and low inflation will make valuations rise. This coupled with economic projections may prompt more "buy" recommendations.

They have implemented some pretty strong regulations on weekly reporting.

http://234next.com/csp/c...s/5508142-147/story.csp

What did the Nigerians do at their MPC meeting.

Read more:

http://www.cenbank.org/O...anuary_4_and_5_2010.pdf

The banking sector had a growth rate of 56.1% in aggregate domestic credit (net) (boy that's pretty high). And despite various policy measures reserve money is still below indicative benchmarks; in Kenya it's at par, so liquidity seems fine.

as vvs says...the cbr is a baseless rate...cbk need to make it more relevant...

With all the borrowing going on we ask ourselves...what are they using all this money on? The govt made a confession that of the 24.2b of stimulus funds only 3.25b had been spent...apparently issues with project contractors, but they're still hopeful. So why are they still borrowing more?

Read more:

http://www.businessdaily...2/-/6bbojf/-/index.html

A good thing about Treasury borrowing is that it’s getting it cheap and this is important for repayments. In Kenya we pay interest+principal to our external debts, but pay interest only on our domestic debts...& domestic interest alone comprise more 10% of KRA revenues per year.

A word on Kenyan inflation…look at the latest CBK weekly bulletin, there is a graph showing 12-month overall inflation dipping below 12-month underlying inflation. The rains have lowered food prices considerably, but do we have things backwards, everything else (alcohol, tobacco, fuel, power, transport, housing, clothes, etc…) is much much higher? What happens at the end of February 2010 when KNBS reduces the food inflation weighting to 40.0%, which statistic will be more relevant when core inflation continues to climb above headline inflation?

The last time underlying inflation was at par with overall inflation was in Oct-2005, which coincidentally is when the base index for the new CPI geometric mean...so was Oct-2005 chosen for this reason? Does it represent a time when food inflation was at its lowest?

A citibank analyst observed that food and energy accounted for much of the increase in Kenyan inflation. Food inflation (based on 1997 prices) in Oct-2005 was 2.3% vs 25.2% in Sep-09 while fuel&power inflation declined from 11.0% to -9.5%. But look at the rise in fuel index in geometric terms...I'm not surprised that core (underlying) inflation is up.

The CBK monthly economic review reveals that total govt revenue collected by KRA was up 13.7% to 269b over 2008 but below the target of 278b. Public debt climbed by 14.7% to 1,115b during the same period. So what does this mean when the rate of Kenya's debt grows faster than revenue collections? The CBK says the following "cumulative govt expenditure on interest and other charges on domestic debt increased from Ksh13.5 billion in the first half of fiscal year 2008/09, to Ksh31.2 billion in a similar period of the fiscal year 2009/10".

So interest and other charges on domestic debt rose 131% compared to 2008 so it's in the best interest for govt to maintain lower borrowing rates...sound familiar, becoz this is the scenario playing out in the US. So by the end of 2009, for every shilling KRA was collecting, 16.4 cents was being used to pay domestic interest and external debt service vs the 9.1 cents we were paying in 2008 (80% rise).

Finally the CBK balance sheet shows them holding 16.6 billion worth of govt securities on the asset side...what does this represent? This represents the money the CBK has printed/created to facilitate the growth of Kenya's public debt. On the liability side, at Dec-09 GOK was holding 70billion at CBK which is up 18billion from Nov-09...so this seems the preferred way Treasury wants to contain all that liquidity CBK has been creating, basically mopping up bank liquidity during govt bond auctions & not spending it...after all the govt admitted two weeks ago that they have only spent a fraction of stimulus borrowings.