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Recent Topicals

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Cytonn Note on the Monetary Policy Committee (MPC) Meeting for May 2020

May 22, 2020

The Monetary Policy Committee (MPC) is set to meet on Wednesday, 27th May 2020, to review the outcome of its previous policy decisions and recent economic developments, and to make a decision on the direction of the Central Bank Rate (CBR). In their previous meeting held on 29th April 2020, the committee decided to reconvene within a month for an early assessment of the impact of these measures and the evolution of the COVID-19 pandemic. In the last sitting, the MPC lowered the CBR by 25 bps to 7.00% from 7.25% citing that the accommodative policy stance adopted in March 2020 was having the intended effects on the economy. They however noted that the Coronavirus pandemic had continued to affect economic growth and as such, there was need to further cushion the economy against the effects of the pan...

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Currency and Interest Rates Outlook

May 17, 2020

In our Q1’2020 Kenya Macroeconomic review, we analyzed the 7 macroeconomic indicators namely; Government Borrowing, Exchange Rate, Inflation, Interest rate, GDP, Security, and Investor Sentiment that we expected to influence Kenya’s economic growth. Based on these indicators, we switched our 2020 outlook to negative from positive with the decision mainly driven by the expected effects of the Coronavirus on the economy. On the interest rates, we gave a negative outlook since we anticipated upward pressure to emanate from the increased government borrowing. As the business environment becomes more challenging, we expect a dip in tax revenues amidst the Government being in dire need of funding to offer the requisite financial stimulus to the economy. The currency outlook was negative due to continued pressure on the shilling from the unfavorable balance of payments position, as we expected forex in...

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Focus of the Week: Using Pension for Housing Purchase

May 10, 2020

On April 25th 2020, President Uhuru Kenyatta assented the amendments to the Tax Act 2020, one of which was to the Retirement Benefits Act allowing pensioners to use their savings to purchase a residential house and withdrawal taxation rate; this is in line with the Big 4 agenda to promote housing. Following this amendment, the Retirement Benefits Authority drafted regulations aimed at governing the new provision. As such, this week, we seek to enlighten the market on the changes made in the Retirement Benefits Authority (RBA) Regulations, what the changes mean for retirement schemes and the pensions industry going forward and our take on the adequacy and effectiveness of the proposed regulations. But before we continue, we must commend RBA for their responsiveness: the President assented to the Tax Act on April 25th 2020 and in less than a month, we already have the draft regulations for discussion on how they impact the President’s Big 4 housing...

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OVERVIEW OF THE FY’2019 PERFORMANCE BY UNIT TRUST FUND MANAGERS

May 5, 2020

Unit Trust Funds, “UTFs”, are collective investment schemes that pool money together from many investors and are managed by professional Fund Managers, who invest the pooled funds in a portfolio of securities to achieve objectives of the trust. Following the release of Unit Trust Fund Managers’ results for FY'2019, we examine the performance of Unit Trust Funds, as they are among the most popular investment options in the Kenyan market. Further, we narrow down to analyze the performance of Money Market Funds, a product under Unit Trust Funds, currently the most popular in terms of Assets under Management, with 87.0% of the UTF market. In our previous focus on Unit Trust Funds, we looked at the H1’2019 Performance by Unit Trust Fund Managers. In this note, we focus on the FY’2019 performance by Unit Trust Fund Managers, where we shall analyze the following:

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Debt Relief Amidst the COVID-19 Pandemic

May 3, 2020

Introduction:                Kenya’s public debt continues to be a topic of discussion in most macroeconomic outlook discussions, with global credit rating agencies such as Fitch Rating expecting the pandemic to halt the country’s fiscal consolidation and increase its financing needs. Most recently in December 2019, Fitch affirmed Kenya’s B+ rating owing to the country’s  strong and stable growth outlook, however, they cited failure to stabilize government debt to GDP levels could lead to a negative rating action. In the wake of the Coronavirus pandemic, economic effects of the virus continues to increase with the number of cases rising and the number of deaths escalating. As such, risks abound on revenue collection and increased expenditure resulting from capital required to control the pandemic leading to increased fiscal pressure given the existing hug...

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