Market Outlook in a Shifting Global Economy

Kenya’s markets are at a turning point. Foreign outflows are pressuring the shilling, while cheaper credit is fueling private sector growth. With the U.S. easing rates, the big question is whether opportunity can outweigh the risks.

Highlights

• KES 4.6 billion foreign outflows jolt stock market rally

• Top banks stockpile KES 1 trillion bonds for sale as rates fall

• Private sector credit up fourfold in June on cut interest rates

• Relief for companies as loan rates tied to Treasury bills fall

• Fed cuts rates by 0.25% and signals more cuts ahead

Foreign Outflows and the Shilling

Equity market foreign outflows of KES 4.6B highlight reduced external appetite for local assets. Such movements typically place short-term depreciation pressure on the KES as funds are converted into hard currency.

Bank Bond Holdings

Leading banks have accumulated close to KES 1T in government bonds as interest rates trend lower. This positions them for valuation gains as yields decline, supporting sector stability, though it also reflects reduced lending to the private sector.

Credit Growth

Private sector credit expanded fourfold in June, underpinned by lower lending rates. This indicates stronger credit uptake for investment and consumption, providing a potential boost to domestic economic activity.

Corporate Borrowing Costs

With loan rates increasingly tied to Treasury bill yields, companies are benefiting from falling financing costs. This development offers relief for balance sheets and may improve the investment climate.

Global Backdrop

The US Fed’s 25 bps cut and signal of further easing weakened the USD, which may help cushion the KES from sharper depreciation pressures. Lower global yields could also support demand for frontier market debt over the medium term.

Overall Outlook

The Kenyan economy is experiencing a mix of short-term currency pressures from foreign equity outflows and domestic growth support from easier credit conditions and lower borrowing costs. The balance of risks will hinge on whether renewed foreign inflows can offset local credit expansion and bond market concentration.

USDX

Toward the end of Q3, the US Dollar Index (USDX) has traded in a relatively narrow range around the mid-97s, with brief upticks driven by Treasury yield moves and safe-haven demand, but the broader tone remains soft. Markets are leaning bearish on the dollar amid expectations of further Fed rate cuts, softer U.S. macro data, and structural concerns over deficits, suggesting that recent stability may give way to renewed weakness if dovish policy signals persist.

Conclusion

As the interplay between foreign capital flows, domestic credit expansion, and global monetary policy unfolds, Kenya stands at a crossroads. The resilience of the shilling and the vitality of the economy will depend on whether easing credit conditions can outweigh the drag of foreign outflows. For investors, policymakers, and businesses, staying alert to both local opportunities and global signals will be key to navigating the months ahead.

Question for You

Which force do you think will shape Kenya’s economy most in the coming months foreign capital flows or domestic credit growth?

Reply and let us know.