400bps rise just like that. Short-term, probably not much of an effect, but long-term I think banks will stand lending to private sector a little more and do less arbitraging nonsense that is pushing Ksh so low.

I rarely say this but hey CBK is finally roaaring...

Unfortunately 400bps with strong likelihood of additional hikes in the next few weeks, is akin to clamping and squeezing the economy's balls. There is no way we can grow the economy at these rates. Ole wangu walio na mortgages from commercial banks, you may need to tighten the msipi for a few months. Please put aside a nest egg because base rates may just kick up in a few weeks.

Liquidity and money supply attributed to the retail/individuals have been growing quite fast (ave. 20%/annum) unfortunately almost all this growth is short term money and other hot monies.

As much as our inflation is supply side driven/mostly food driven, I will stick my neck out and postulate that at least 50% of our inflation is fueled by both hot and short term money. CBK has been encouraging this growth a bit carelessly. The result is that the economy is overheating from 4-5% growth which is nonsensical, unless someone is sleeping on the job. CBK has to have a deliberate policy of converting this growth into long term capital which is the only way we can sustainably grow the economy and create meaningful jobs. Allowing banks to lend for consumption at single or near single digit rates is very much encouraging drinking during working hours and hoping no one is likely to get high. Well almost always folks get high.

Fixing the currency is as easy as ABCD just introduce capital rules demanding more shareholder capital to support any FX loans owed to local and foreign banks and banks FX reserves beyond a certain threshold as part of risk based measures. The argument being should the FX currency risk suddenly materialize, the bank's capital could be wiped off by the amount of the loss which may prejudice local depositors and borrowers. Therefore if someone has the spine for the FX arm wrestle let them bring their bottle.

Anyone watching KES today? Getting hit by all ccys. GBPKES above 160...

Yield curve...


T-bill 91 day weekly... The signal was flagged on auction #1903 - that was the rate money lenders to gok wanted the interest rates as inflation rate went above the cbk limit of 5%...

http://www.centralbank.g...ills/WeeklyBills91.aspx

So will we see T-Bill 91 day interest rate break above 20%... Look at 2000, 1999, 1998, 1997, 1996, 1995 and the holy grail year 1993 when the rate spiked to 72.09%... Latest T-Bill 91 day auction interest rate was 14.83%. And investors are expected to put money in stocks or worse a bank savings account which as per cbk stats pays 1.37% interest (Aug 2011) and a deposit rate is 4.07% (Aug 2011).

At this rate, just borrow from your saccos and buy those T-bills. They'll pay for your loans... Money goggles...