“Generally the market today was slightly lower, turnover fell drastically. East African Breweries and Barclays were the only two large cap stocks that were up. The rest of the market was pretty much flat,” Kestrel Capital research analyst Kuria Kamau told CNBC Africa on Monday.
“This is largely due to the fact that inflation that was announced last week on Friday had risen to 6.67 per cent. Generally the market performance has been much lower today.”
The new Value Added Tax (VAT) bill, which came into effect on Monday, is expected to cause a price hike and could translates to all players in the stock market. Most companies are also expected to pass on the cost of higher VAT into their commissions.
“We expect largely higher prices but transactions should remain the same. The market is buoyant, we’ve had a very good last two years and we expect that to continue going forward,” Kamau explained.
According to a Reuters poll, the Central Ban of Kenya's Monetary Policy Committee, which will announce the interest rate decision on Tuesday, is expected to leave the benchmark lending rate at 8.50 per cent until the end of the year. This is to counter rising inflation and the weakening Kenyan shilling.
Kamau added that the supply side of inflation remains stable, therefore keeping food and electricity prices stable. Private sector credit growth has also been stable, and these factors will prompt the central bank to maintain rates.
“The biggest thing that would result in higher inflation would be the new VAT that will lead to much higher prices across the board for all consumer goods, so that could cause some risk,” he said.
“In the longer term, I think inflation higher than 9 per cent would lead the central bank to come in with a cut but generally we’re okay at current levels. We should expect just a one-time rise in inflation due to VAT but after that I think we’ll be relatively okay.”