Tuesday, September 06, 2011

CBK - What is going on? Or not?

Can anyone make head or tail of CBK's recent moves relating to the Monetary Policy or Exchange Rate Policy?


I am going to refer to the August 2011 newsletter by Cannon Asset Managers - please click on this link for the entire newsletter - for an incisive look at what the CBK is saying or not saying or who knows what it's saying...


"Central Bank once again reverted to a tight monetary policy stance, just 2 weeks after indicating that they did not believe tight policy stance would have the desired result"


Flip flop... Well, at least they are willing to change but have the mandarins at CBK really thought it through? Or will the flip flop continue?


"We forecast that, having got its message across to the banking sector (though we are not sure what the message is), the CBK will relent and bring the overnight discount rate closer to 8%, without diluting its tight monetary policy stance."

So as CAM said "not sure what the message is" - What happened to clarity? Heck, I think CAM is being polite. You can't go start, stop, start, stop, start, stop... then start the process all over!

"we estimate that the weighted average rate of the rejected bids for the 30-year bond was about 21.7%"

Gulp! This would kill off investment since many would rather invest in T-Bonds than invest in the real economy! I do agree that CBK/Treasury should reject such bids but it also shows the lack of confidence in Kenya's Economic or Monetary Policies. If the (estimated) WEIGHTED AVERAGE is 21.7%, I dread to think what the higher end of the range was!

Bottomline: These announcements & badgering by CBK is confusing folks leading to a higher premium on loan & forex to 'mitigate' the uncertainty. I have spoken to many bankers who say they are MAXIMIZING the risk premium/spreads on loans & forex since they can't plan. 

Some banks have even stopped (reduced) lending - not because of the liquidity crunch - but the uncertainty of CBK's unpredictability. Unpredictability leads to Volatility leads to Higher Spreads leads to Higher Pricing/Costs leads to Reduced (sustainable) Economic Activity.

If I get the time I will blog on the CBK's crazy shenanigans at the Discount Window & how even a mediocre Finance/Economics/Banking students would have collectively scratched their heads at CBK's moves.


Or CBK Guv can blame KenolKobil for the woes facing Kenya!


No rain? - KK should plant more trees. 
KES falling? - KK decided to pay for fuel imports instead of delaying payments.
Interest Rates Up? - KK has a Commercial Paper out.
Traffic Jams? - KK has made it easier to buy fuel by opening up more stations.
Fuel Shortage? - KK hasn't opened enough stations.
Inflation up? - KK's Deal Poa should be 10/- not 5/-
Food Shortage? - KK should be in the business of growing food crops.

* I hope Cannon is OK with the use of the quotes in red. I assume it is OK as long as I give credit to CAM & the newsletters are posted on their website *

Disclaimer - All comments/opinions are mine. The 'original' newsletter can be found at http://www.cannonassetmanagers.co.ke/newsletter-august/index.html and has a lot more detail. I also like the grading given to banks but note the lack of sufficient detail provided to the investing public.

4 comments:

sunaishah said...

I think the CBK has no way of taming inflation the greatest source of wealth erosion which is leading many hunters to turn to real assets such as land to store their wealth in.

The economy needs to be cooled down and public debt needs to be carefully managed. Additional blocks need to slow down credit creation which is fueling private debt.

Finally reliable systems need to be put in place to monitor these.

bankelele said...

Remarked on this earlier - it's like a scene in Bee Movie where (Barry the Bee) thought he was flying a plane quite nicely, until lighting stuck and he disocevred they has beenon autopilot all along.

Oh, it has a happy ending; hope the same can be said of the Kenyan Economy which was on auto-pilot

coldtusker said...

@sunaishah: All valid points but the way CBK went about it made no sense to me. The Discount Window was abused but CBK was sleeping on the job.

Now that the horse has bolted, they are building a huge boma around the stable...

@banks - I agree but when the M3 was exploding no steps were taken to rein it in. Also I do not see 'investment' in real estate as a primary economic driver. We need to have agriculture + industry to create real jobs not trading & rent-seeking.

Inflation, Pacifiers, Stilettos and an African Dream said...

"I think the CBK has no way of taming inflation the greatest source of wealth erosion which is leading many hunters to turn to real assets such as land to store their wealth in."

Who exactly is investing in land? Is the value of real estate sound and measurable?

I think land (and real estate) value has to be re-evaluated. I think its over rated and that bubble may bust- if this second "recession' will catch up with us.

Auto-pilot is off now?

There's no such thing as a happy ending from my POV.