NAIROBI, Kenya, Sep 18 – Economic experts do not expect any increased capital inflow in the country due to the United States Federal Reserve decision to retain rates at zero percent.
Pan Africa Asset Management Senior Portfolio Manager Kelvin Kangogo says the decision was signaling the US Federal Reserve is comfortable to raise rates but just not now.
Kangogo is predicting the US Fed raising the rates in December.
“Fed Chair indicated that the economy in the US has improved and confidence has risen, but they want to watch the developments in other markets and defending their inflation so in my opinion, they are buying time and may raise the rates in December,” he explained.
When it was first announced that they will be raising rates, we saw both Europe and emerging markets experiencing tough economic times as their currencies weaken to the US dollar and stock market fall. Kenya being one of them.
The announcement triggered a capital flight from emerging markets back to the US.
In Kenya, Equities and bonds have been getting a beating from sell-off rates as most foreign investment companies that have been placing their money in emerging market economies in Africa opt to invest back to their markets.
“Secondly, aside from the US decision, we will be having our own Monetary Policy Committee next week deciding on whether to increase the Central Bank Rate. The widening current account deficit, weakening shilling, lower import cover and other unfavorable macro economic conditions calls for the need to raise rates, If they keep the rates the way it is, unless they have other ways of reducing the expenditure or increasing revenues, we may be facing a worse time ahead,” he added.
Traders shifted out of the dollar soon after the Fed decision to keep rates at zero, which came after one of its most highly anticipated meetings in years.
However, nervous investors were also spooked by comments from the Fed who struck a more downbeat tone than expected about both the health of the US economy, and the outlook for global growth.
Sharing the same sentiments, include Sumitomo Mitsui Trust Bank head of Foreign Exchange sales team Yosuke Hosokawa who says the market still expects a rate hike in the future.
“Dollar-selling sentiment emerged following the Fed’s decision, but the market still expects a rate hike in the future, is it actually time to buy back emerging market currencies now? I doubt it,” Hosokawa said.
The decision boosted developing countries’ currencies, which have fallen in recent weeks.
The Kenya shilling is currently trading at Sh105.15 against Sh105.35 to the dollar gaining marginally in the early morning trade.
CBA’s Treasury Department says the home unit has received support from inter-bank players trimming their long position after the US Federal Reserve refrained from rate hike yesterday.