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The East African : Jul 19th 2015
52 JULY 18-24,2015 BUSINESS, MARKETS AND FINANCIAL ANALYSIS THE MARKET WHISPERER EQUITY MARKETS (WEEKLY CHANGE IN BENCHMARK INDEX) NSE 20 Share Index Kenya 4,638.44 -1.88% (CUMULATIVE MOVEMENT) DSE All Share Index Tanzania 2,622.36 -2.66% USE All Share Index Uganda 1,898.85 -4.34% RSE All Share Index Rwanda 144.69 0.04% JSE All Share Index South Africa 52,791.74 1.62% NGSE All Share Index 31,047.99 Nigeria -2.00% 2 Feb ‘15 2 July ‘15 2 Jan ‘15 2 July ‘15 2 Jan ‘15 2 July ‘15 2 Jan ‘15 2 July ‘15 2 Jan ‘15 policy rate increase of 1.5 percentage points offered some relief to the Uganda shilling last week, it also triggered the risk of increased government borrowing expenses while highlighting the lower intervention costs of using interest rates to stabilise the shilling instead of buying dollars on the open market. The Central Bank Rate (CBR) was increased from 13 per cent in June 2015 to 14.5 per cent for July amid unprecedented pressure on the local unit since last month, with the shilling hitting an all-time low of Ush3,614 to the dollar at the beginning of this month. Though the local cur- rency bounced back shortly after the policy announcement, investor worries persist over the ripple effects of next year’s general election and surging imports linked to ongoing infrastructure projects. Though the shilling opened at Ush3,265 against the dollar on Tuesday, it dropped to Ush3,299 in Uganda’s new CBR halts shilling slide — fo≥ now W hereas the Bank of Uganda’s emergency Yields earned on the 91- day, 182-day and 364-day Treasury bills clocked 14.1 per cent, 15.9 per cent and 17 per cent at the last auction, according to financial market reports issued by Stanbic Bank Uganda. Domestic debt market The government has al- Bank of Uganda has increased the Central Bank Rate from 13 per cent midday trading. It opened at Ush3,327 on Wednesday but fell to Ush3,330 at midday, according to market reports. While the policy rate in- crease is likely to stimulate further spikes in mainstream lending rates, interest costs incurred by government on Treasury bills and bonds could also rise as investors absorb this rate adjustment in their bid prices. Some commercial banks have already raised their prime lending rates by two per cent, with Barclays Bank Uganda increasing its prime rate to 23.5 per cent effective August 1. Short-term borrowing costs incurred on Treasury bills are expected to increase as yields rise in coming months, compel- to 14.5 per cent. Pic: File ling the Treasury to divert resources from other sectors in order to settle growing interest costs incurred during the financial year, experts said. Short-term debt securi- ties that carry a maximum duration of one year seem more attractive to investors than Treasury bonds in times of political and economic uncertainty. located Ush1,370.5 billion ($412.7 million) for interest expenses incurred on new domestic debt issued during financial year 2015/16 while Ush1,384 billion ($416.8 million) is to be raised from the domestic debt market to finance infrastructure projects, budget documents show. “The government’s bor- rowing costs are expected to increase further due to the steep increase in the CBR. We had projected yields on government paper to average 17 per cent during this financial year, but we could incur more costs as monetary policy becomes tighter,” said Lawrence Kiiza, director for economic affairs at the Ministry of Finance, Planning and Economic Development. Cement demand set to d≥op as bo≥≥owing ≥ates ≥ise GROWTH IN demand for cement in the Kenyan market is expected to slow down in the remaining part of the year, as real estate developers respond to the foreseen rise in borrowing rates owing to the Central Bank’s move to tighten the liquidity in the market. CBK has increased the Central Bank Rate (CBR) by 1.5 percentage points to 11.5 per cent and the Kenya Bankers Reference Rate (KBRR), a base rate commercial banks use to price loans and credit facilities, by 1.33 percentage points to 9.87 per cent in efforts to stem the shilling’s precipitous slide. Banks are expected to respond by passing the on burden to consumers, among them the construction industry. The local currency hit a threeand-a-half-year low to trade at an Kenya Bankers Reference Rate, which commercial banks use to price loans 9.87pc average of Ksh100.7 mark by close of Friday, according to CBK data. “We see demand for cement re- maining at 10 per cent growth in the remaining quarters as developers and constructors hold on for a while, hoping for a fall in the rates as the shilling stabilises, ”said Pradeep Paunrana, CEO of Athi River Mining Cement. The rates are also likely to see developers shun less lucrative areas and build houses in areas with higher returns to match the rise in the lending rates. Farhana Hassanali, CEO of HassConsult, said the recent increases in the CBR may once again see investors opting for inner city investments, which are less volatile. Local cement producers had al- so hoped to supply cement to the standard gauge railway project as the government had pledged to use 40 per cent local content in construction of the line. But industry players say there is no transparency on how much is being sourced. Published at Nation Centre, Kimathi Street, and Printed at Mombasa Road, Nairobi by Nation Media Group, Box 49010, GPO Nairobi, 00100. Registered at the GPO as a newspaper. Nairobi Office, Tel: 3288000, 211448, 337710, Fax 214531, 213936. Dar es Salaam Office. Tel: 2119657/8. Kampala Office, Tel: 232771, 232772. Fax 232781 Download free QR Readers from the web and scan this QR (Quick Response) code with your smart phone for pictures, videos and more stories 2 July ‘15 2 Jan ‘15 2 July ‘15 EIB opens fi≥st o∞ce in Ethiopia THE EUROPEAN Investment Bank (EIB) has formally opened its first permanent representative office in Ethiopia, a country whose financial, insurance and telecoms sectors are closed to foreigners. The new office will spearhead EIB’s programmes, both to support long-term infrastructure and private sector investment in Ethiopia and to manage relations with the African Union Commission and other international organisations based in the capital. “Our new home in Addis Ababa will help us support crucial investment in water, energy and other key sectors, as well as backing private sector growth, essential for economic development in Ethiopia,” said Pim van Ballekom, European Investment Bank vice-president responsible for sub-Saharan Africa. “On behalf of my country, I am pleased to welcome the EIB to Addis Ababa,” said Ahmed Shide, Ethiopia’s State Minister of Finance and Economic Development.
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