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Kenya: Pressure Drop

Look to the future. Kenya's reputation for leading the way in mobile-phone based financial innovation shows no sign of softening with the recent launch of its M-Akiba 3-year government bond. The aim was to raise 150m Kenyan shillings (around £1.2m) for infrastructural development, encourage household savings and deepen financial inclusion. The low entry point of 3000 Kenyan shillings (£22) and an anticipated return of 10% to be paid every six months also proved politically astute and predictably led to the initial tranche being oversubscribed. Little wonder that the Kenyan Treasury plans a much larger before the upcoming election.

As for the present. But any electoral glow that President Kenyatta may have garnered has arguably been countered somewhat by the sharp rise in headline inflation over the last few months, to 11.5% y/y in April. This is the highest level for five years and well above the upper boundary of the government's target range (5%+/-2.5%). The administration can rightfully claim divine intervention, in the form of last year's drought, as the key driver. Nonetheless, the opposition National Super Alliance (NASA), led by Raila Odinga who is contesting the presidency for the fourth time, has wasted little time in pointing to policy mismanagement for the rapid climb in prices. Meanwhile, the adverse credit impacts of the interest rate cap, which is being challenged in court, are weighing on overall activity which is likely to soften to around 5.5% this year compared to 6% in 2016. Although the opinion polls put President Kenyatta's Jubilee Party ahead by around 10 percentage points, with the gap closing and about one-tenth of the electorate still to decide, the government will be hoping for much more positive economic news well before August 8.

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