Market activity at the Nairobi Securities Exchange Plc (NSE) soared to a three month high Thursday on the back of increased trading volumes and renewed investor appetite. This is after President Uhuru Kenyatta refused to assent to proposals in the Finance Bill 2019 which sought to repeal the Interest Rates Cap law.
At the close of business, Equity turnover surged to a record KSh 1.9 billion with interest on banking stocks accounting for 88.8 per cent of this turnover.
Equity Bank shares led the movers with its share price rising by 4.3 per cent to KSh 37.60 on heightened foreign investor interest that saw the lender join the gainers.
Safaricom enjoyed foreign demand as the telco announced plans to release its 2019 half-year results on November 1st, 2019. Longhorn Publishers led the pack with its share prices rising 8.8 per cent to sell at KSh 7.44.
Market turnover rose by a massive 448.8 per cent to KSh 1.985 trillion compared to KSh 361.8 billion. Volume of shares traded was 51.3 million compared to 11.6 million the previous day on Wednesday. Foreign buying of shares was worth KSh 1.188 billion compared to KSh 182.9 million the previous day, representing 549.7 per cent increase.
Furthermore, foreign investors sold shares worth KSh 1.756 billion today compared to KSh 336.7 million yesterday even as the NSE migrated to its refurbished automated trading platform.
Rate cap: will it finally be repealed?
Reasons cited for a proposal to repeal the law include strained credit to the private sector, weakening of monetary policy tools and mushrooming of shylocks and other unregulated lenders.
All eyes have thus shifted to the Executive and Parliament over whether or not the Rates Cap Law will finally be repealed. President Uhuru Kenyatta has kicked back the Finance Bill back to the MPs and asked them to scrap the rate cap law.
Should MPs now agree with him and remove the cap, there are
fears that borrowers will be left at the mercy of banks that will now price
their loans at will and make maximum profit.
“If the rates cap law is removed, we expect treasury yields to rise although not significantly. The business environment is yet to improve and simply removing the rates cap law will not completely solve that situation.” said a business commentary from Genghis Capital Investment Bank.
The firm notes that consequences for the government will be
lower uptake of domestic debt, forcing it to cut expenditure and borrowing from
the local money market.
According to Genghis Capital, there is also a likelihood of a cut in the CBR during the November meeting (50-100 basis points) by the Monetary Policy Committee (MPC), a top policy organ of the Central Bank of Kenya. The Central Bank Rate (CBR) has been at 9.00 points since the July 2019 MPC meeting.
A possible repeal of the rates cap law has elicited mixed reactions from a cross-section of economists, financial analysts and academics.
A repeal of this law is a win-win for all. It is not the business of government to regulate interest rates but rather price mechanism. Firstly, banks will be celebrating since they will have a free hand while fixing rates and making maximum profits. The private sector will not be starved of cash and accessing credit due to flexibility in borrowing conditions
Samwel Nyandemo, Economist at the University of Nairobi.