Kenya’s Inflation Rate Drops to 2.7% in October Amid Decline in Fuel and Food Prices

According to a Weekly bulleting released by CBK on 1st of November 2024, Kenya experienced a significant reduction in its inflation rate in October 2024, with the overall rate dropping to 2.7% from 3.6% in September. This decrease is primarily attributed to lower fuel and food inflation. Fuel inflation notably declined to -1.7% from 1.1% in September, while food inflation fell to 4.3% from 5.1%, largely driven by a reduction in vegetable prices. Additionally, Non-Food Non-Fuel (NFNF) inflation saw a slight decrease to 3.3% from 3.4%, indicating general price stability across most components.

Stable Exchange Rates and Foreign Exchange Reserves

During the week ending October 31, the Kenya Shilling maintained its stability against major international and regional currencies, exchanging at KSh 129.20 per US dollar, the same rate as on October 24. Kenya’s foreign exchange reserves remained robust, standing at USD 8,586 million, equivalent to 4.4 months of import cover as of October 30. This level meets the Central Bank of Kenya’s (CBK) statutory requirement to maintain at least four months of import cover.

Adequate Money Market Liquidity

The money market’s liquidity was sufficient during the week ending October 31, supported by open market operations. Commercial banks’ excess reserves were recorded at KSh 39.5 billion in relation to the 4.25% cash reserves requirement (CRR). The average interbank rate slightly increased to 12.10% on October 31 from 11.97% on October 24. Additionally, the average number of interbank deals declined to 42 from 51 in the previous week, and the average value traded decreased to KSh 33.6 billion from KSh 44.4 billion.

Treasury Bills and Government Securities Market Performance

The Treasury bill auction held on October 31 saw a high performance rate of 259.0%, receiving bids totaling KSh 62.2 billion against an advertised amount of KSh 24.0 billion. Interest rates on the 91-day, 182-day, and 364-day Treasury bills experienced a decline.

Positive Movements in the Equity and Bond Markets

The Nairobi Securities Exchange (NSE) showed positive trends during the week ending October 31, with the NASI, NSE 25, and NSE 20 share price indices increasing by 3.0%, 2.7%, and 3.3%, respectively. Over the same period, market capitalization, equity turnover, and total shares traded saw increases of 3.0%, 16.3%, and 187.5%, respectively. In the bond market, domestic secondary market bond turnover rose by 49.8%. On the international front, yields on Kenya’s Eurobonds generally decreased by an average of 18.5 basis points.

Global Economic Trends

Globally, the US economy demonstrated resilience with a growth rate of 2.8% in Q3 2024. Concerns about inflation in advanced economies have lessened, with Euro Area headline inflation rising marginally to 2.0% in October from 1.7% in September. The US dollar index weakened slightly by 0.08% against a basket of major currencies during the week ending October 31, 2024. International oil prices declined during the same period, partly due to easing geopolitical risks, particularly in the Middle East, with the price of Murban oil falling to USD 72.42 on October 31 from USD 76.66 on October 24.

This comprehensive overview highlights the significant developments in Kenya’s economic landscape, reflecting both local stability and the influences of global economic trends.