Inflation expected to hit a high of 8.1% pushing Kenya Power to increase electricity tariffs
The Kenya Shilling appreciated this week, gaining marginally by 13 bps against the dollar to close the week at Ksh.103.6, from Ksh.103.8 the previous week, on account of:
- Low dollar demand
- Dollar inflows from non-governmental organizations
On a year to date basis, the shilling has depreciated against the dollar by 1.1 percent. In recent months, we have seen the forex reserves reduce to $6.9 billion (equivalent to 4.6 months of import cover), from $7.8 billion in October 2016 (equivalent to 5.2 months of import cover). The level of forex reserves has now stabilized, an indication of the confidence of the Central Bank with the current levels of the shilling. The Kenya Shilling trades freely, but the Central Bank occasionally intervenes in the market to reduce the rate of the currency volatility.
For the month of February, the government is seeking to issue a new 12-year amortized Infrastructure Bond (IFB 1/2017/12) with an effective tenor of 8.8 years, in a bid to raise Ksh.30 billion for partial support of infrastructural projects in the roads, energy and water sectors. Investors will participate up until 21st February, 2017.
Inflationary pressures are expected to increase in the first half of 2017 due to:
- The ongoing drought that is affecting food supply and has led to an increase in electricity tariffs
- The increase in oil prices in the international market
- The strengthening of the dollar
This week, the Energy Regulatory Commission (ERC) increased the forex levy on power bills in the month of February by 62.5 percent to Ksh.1.3, from Ksh.0.8 per Kilowatt hour in January, as they pass on the effects of the strengthening dollar to the consumers. According to Cytonn Investments, the inflation figures will be high in the first half of 2017, touching a high of 8.1 percent, which is above the CBK target, but should normalize towards the end of the year and lie within the upper bound of the 2.5 percent – 7.5 percent target.