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Kenyan shares soar to six-month high on rate expectations

06 August 2014, 08:19

Nairobi - Kenyan shares jumped to a six-month high on Tuesday on expectations that domestic interest rates will come down after the government said it would cut borrowing by close to half.

The benchmark NSE-20 share index rose nearly 1 percent to close at 5,003.36 points, exceeding the 5,000 level for the first time since late January.

Market participants cited a statement by the presidency that the Treasury planned to slash domestic borrowing this financial year from 190 billion shillings ($2.2 billion) to about 100 billion.

"The reduction in the local borrowing is an outrageously bullish signal," said Aly Khan Satchu, an independent trader and analyst.

"It means local interest rates are coming lower. It means dividend stocks in particular at the stock exchange will look really attractive."

East African Breweries, viewed as a barometer of dividend-rich stocks, rose by just over 2 percent to finish at 307 shillings per share.

In the foreign exchange market, the shilling closed at 87.85/95 per dollar, slightly weaker than Monday's closing rate of 87.75/85.

Traders attributed the weakening to the central bank's injection of 8 billion shillings into money markets through a reverse repurchase (repo) agreement during Tuesday's session.

"It (the reverse repo) could signal an easing of the conditions in the money markets," said a trader with a leading commercial bank.

Overnight borrowing rates on the interbank market rose above 10 percent at the end of last week as delays in disbursement of funds for government expenditure causing a liquidity crunch.

Tighter liquidity usually makes it slightly more expensive to fund long dollar positions, which tends to cushion the shilling.

In the debt market, bonds worth 3.28 billion shillings were traded, down from 4.15 billion shillings the previous day.

- Reuters


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