- Kenya's inaugural Eurobond matures on June 24.
- The government's transaction advisers recommended against December last year's buyback plan after a thorough market analysis.
The decision by the Federal Reserve in the US to leave the anchor borrowing rate unchanged will worsen Kenya's tough financial position, experts have warned.
Reacting to Wednesday's Federal Open Market Committee meeting that left the guiding rate at a range of 5.25 to 5.5 per cent, financial analysts are worried that the shilling might drop further and push up the cost of borrowing.
"This was expected. I love the fact that the Fed committee has promised to cut the rate in the future but that will not help the current situation. We should expect the same to replicate here as the shilling continues to slide against major international currencies,'' Gregory Omwera of Diamonds Capital told the Star.
He added that the retention of the cap in the USA will complicate Kenya's second chance to buy back part of the inaugural Eurobond worth $2 billion that is due on June 24.
On Tuesday, President William Ruto indicated that the country will execute the buyback that was to happen in December last year either in February or March.
"What they have recommended is we do a buyback in February, March, and then we go to the market," he said in an interview in Rome, on the sidelines of the Italy-Africa summit.
This is the second time Ruto has promised a Eurobond buyback after announcing to Parliamentarians that Kenya would buy back $300 million of the Eurobond before the end of 2023.
The government's transaction advisers recommended against December last year's buyback plan after a thorough market analysis.
Gabriel Gathuma, a financial expert working with a local bank says the shilling will remain wavy as long as the greenback is still strong.
I expected a cut. The holding of the rate is not a good thing, especially at the time Kenya is expected to repay a huge debt. Holding the rate is as lethal as showering it up. End game...making profits,'' Gathuma said.
Even so, Mihr Thakar is seeing a brighter side to the Federal Bank's decision.
"It is well established that the US Fed has pivoted from rate hikes to future rate cuts. The narrative is now baked into sentiment throughout the world.''
He adds that the potential for an earlier hike would be increased with softer US inflation data for January 2024.
He disputed the notion that the holding of the Fed will hurt the recovery of the local currency, saying that the journey of the Kenya Shilling is subject to supply and demand rules.
"The Federal Open Market Committee removed language that had indicated a willingness to keep raising interest rates until inflation had been brought under control and was on its way toward the Fed’s two per cent inflation goal,'' Thakar said.
The Fed team said there are no plans yet to cut rates with inflation still running above the central bank’s target.
The statement further provided limited guidance that it was done hiking, only outlining factors that will go into “adjustments” to policy.
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward two per cent,” the statement said.
Fed chairman Jerome Powell said policymakers are waiting to see additional data to verify that the trends are continuing. He also noted that a March rate cut is unlikely.