Dear Wazuans,

As you may have heard, the MPC meeting held yesterday concluded in a 550bp increase in the CBR and another 525bp increase in the CRR. These are actions meant to tighten the amount of money in circulation to stabilise the shilling as well as curtail inflationary pressures. The following are likely effects we think these actions will have on the NSE;

1. General effect may be felt on stock market as SOME households sell of their existing stock holdings to deleverage (pay-off loans as interest rates are expected to rise).


2. Effect also likely to be felt on "interest rate sensitive stocks" such as Banking Stocks & Insurance ahead of Q3 announcements which will reveal how many are exposed to interest rates via the bond portfolios.


3. Expectations are also that a slow down in purchasing power will likely hit stocks that are dependent on credit growth and strong consumer spending – e.g Automobiles (C&G, CMC) , or Cement Stocks if Interest Rate hikes will be reflected in mortgages.


4. Expectations are also that Short Term Interest Rates (91 Day T-Bill & 182 Day T-Bill) will go higher ( range between 18%-22%)….this will likely cause fund managers to shift to more attractive fixed income securities at the expense of the stock market – It may lead to further sell-offs by institutional investors or they may opt to stay away from the market all - together.

So what you guys think? Any queries or opinions you may have don't hesitate to leave a post.

Regards,

GenghisCapitalLtd