Another rate hike will have to happen...there are no 2 ways about it.

Came across this;-

Earlier today we met with the CBK to discuss macroeconomic developments within the Kenyan economy. We met Prof. Terry Ryan, senior adviser to the Monetary Policy Committee.

Of course with a new CBK governor at the helm we were interested to understand whether the central bank’s Taylor rule or philosophy had changed. Price stability remains their key mandate; however they did reiterate that if the pass through effects of a weaker KES jeopardizes their inflation outlook, they may be tempted to raise rates further.

In fact, they described their decision to hold rates at the MPC meeting last week as a ‘pause’ to wait and assess the impacts of their previous rate hikes. Our assessment that, given the CBK’s concern about the pass-through effects of KES weakness on inflation, the CBK would tighten the policy stance more aggressively if the pressures on the KES were to persist seems well-placed. Headline inflation is also likely to rise in Aug and Sep 15 on the back of higher fuel levies and base effects, another factor that puts the bias toward further tightening of the policy stance.

Moreover, with the US Federal Reserve likely to raise rates later this year he seemed calm about the ramifications it may have on the KES. He appears to believe that the market has largely priced in the effect of an imminent US rate hike and also seemed to concur with our thesis that the pressure on the BOP since Mar has been due to capital outflows, particularly portfolio flows.
Prof. Ryan also noted a concern about “refinancing risks” of government debt and hence gave an indication of a preference to issue bonds (2-y-10-y maturities) instead of T-bills. So, in effect, the CBK seems reluctant to have the government pay up for short-dated debt that will need to be rolled over within a year, but would rather have the government pay up for long-dated paper that will need to be rolled over after at least 2 years. This is an odd risk management strategy. It is always preferable for borrowers to look to shorten the duration of their new liabilities near the top of a rising interest rate environment that is expected to be transitory knowing that they will be stuck with high interest rates for a only short period of time, and can then look to issue longer maturities once interest rates have fallen back down.

Since the start of FY2015/16 in Jul cumulative net issuance of government T-bills and bonds was negative as of last week, i.e. maturities exceeded issuance of new paper. With the higher domestic borrowing target of KES223bn in FY2015/16 from KES163bn in FY2014/15 the government will need to pick up the pace of issuance of new paper. Liquidity conditions are quite tight, with the interbank rate in excess of 22%, and anecdotal evidence indicating that smaller commercial banks are bidding up for term deposits. In this environment it seems inevitable that yields on government paper will rise. But as already pointed out, it seems the preference is for much of this pressure to be focused at medium to long end of the curve.

at this point whether to hike or not is moot, CBR is far behind market determined rates,once again the issue is not what caused the crisis of 2011, rates should never have gotten to this level

EMs and FMs like KE that have had their currencies battered will be the greatest beneficiaries. there will be no more need for those painful cbr hikes. Equities will sprout, everyone will smile.
Waiting for September for the USD shorts. Maybe then @Mnandii can make 2,000 pips plus on his $YEN bears

CBK has the dollar at mean of 103.7712. So we are still seeing a slide. Looks like a rate hike will be on the cards next month.