Kenya’s drawn-out election season compounded by a political impasse is slowing down the economy, with key indicators in the money and stockmarket rising stress levels.
The weekly bulletin of the Central Bank of Kenya (CBK) indicates that the country’s foreign reserves have been falling — since the September 1, Supreme Court ruling that annulled the August 8 presidential election — from $7.54 billion to $7.37 billion.
The data shows that CBK was ramping up the reserve for the six weeks to September 20, and since then, it has used more than $170 million to intervene in the money market in favour of the shilling.
On Wednesday, CBK the governor Patrick Njoroge admitted to market interventions to smoothen out excess volatility. “We are committed to the flexible exchange rate policy, but we have been forced to intervene occasionally to stabilise the shilling.
We are also in the process of revising the growth forecast downward following the effects of the political uncertainty from the annulment of the August 8 presidential election.
We still think there isn’t a precipitous collapse in growth, and we will maintain growth rates above 5 per cent,” Mr Njoroge said.
The shilling weakened by 0.4 per cent but has since regained 0.2 per cent from Ksh103.21 to the dollar by the week of September 20 to the current Ksh103.43 to the dollar that it was trading at by Thursday.
The weakening has been attributed to uncertainty among offshore investors, which has put intense pressure on the local currency. The shilling has however only fallen by a marginal 0.68 per cent since the beginning of the year.
Genghis Capital senior research analyst Churchill Ogutu said the pressure on reserves is likely coming from companies stockpiling dollars as the political uncertainty intensifies.
“I believe a lot of corporates may be stockpiling before the election just to be on the safe side. We saw a bit of that before the August 8 election and now that we have a heightened stalemate, we could see more of this in the market.
We have also seen support for the shilling by the CBK because in all these risks that we have been flagging, the shilling shouldn’t have been this stable,” Mr Ogutu said.
On the stockmarket, there has been a considerable drop in monthly volume in the one month since the Supreme Court decision that saw the trading at the Nairobi Securities Exchange drop by almost 50 per cent to 490 million shares traded from a monthly high of 740 million, while the average traded volume before the August 8 election was 640 million shares, data from Reuters shows.
The NSE Summary for September shows that the NSE 20 share index dropped by 6.8 per cent.
As at the week of the election petition ruling, it stood at 4,027 points, but had since dropped 12 per cent to 3626.23 points as at Wednesday.
Net foreign participation has since June seen outflows outnumber inflows, with more than $130 million leaving the bourse, with September leaking the highest amount of $56.9 million as foreign investors move their funds to other stable markets.
The counters that led these outflows included Safaricom, Equity Bank, Bamburi and East African Breweries.