Interest Rates

Alpha Africa Asset Managers limited is a multi-asset class investment company licenced by
both the Capital Markets Authority and Retirement benefits Authority of Kenya and as a Fund
Manager. Alpha Africa are also promoters and advisors for Dhahabu Africa Capital, a private
equity fund registered and licenced by the Financial Service Commission, Mauritius. Alpha
Africa Asset Managers Rwanda Limited is based in Kigali, Rwanda and is licenced by the
Capital Markets Authority Rwanda. Together we offer a wide range of investment solutions
and services in Sub Sahara and globally to investors.
Alpha Africa specializes in a broad range of asset classes carefully tailored to create wealth for
its clients and ultimately bolster social-economic progress.

Kenyas Interest Rate Environment

1. Q. Describe the current interest rate environment?
A. The economy is currently going through a high interest rate
environment as evident in the rapid increase in the Treasury bill
rates and cost of borrowing.
2. Q. What is the cause of the current high interest rate
environment?
A. A number of factors have led to the recent increase in
interest rates.
Firstly, for the fiscal year 2015/16, the government is expecting
to borrow KES 219 billion from the local market through Treasury
bonds and Treasury bills. The government is carrying out mega
infrastructure projects such as the standard gauge railway and
as a result the government has stepped up its borrowing.

Secondly, In June 2015 the Monetary Policy Committee (MPC)

raised the Central Bank Rate (CBR) from 8.5% to 11.0% and
further raised it to 11.5% in July 2015 in order to support the
Kenya shilling which had depreciated against the USD by 7%
from 92.7 in April 2015 to 99.25 in July 2015.
3. Q. What is the Monetary Policy committee (MPC) and the
Central Bank Rate (CBR)?
A. The MPC is a committee within the Central Bank that is
charged with setting the interest rates depending on the current
economic condition. The committee meets on a monthly basis
or as deemed necessary.
The CBR is the rate at which the Central Bank lends to
Commercial Banks.

4. Q. How does the Central Bank use the CBR to support

the Kenya Shilling from depreciating?
A. The CBR supports the shilling as follows.

6. Q. Who are the winners and losers in a high interest rate

environment?
Winners: Investors with an appetite for debt instruments,
importers who benefit as a result of a stronger currency &
Money Market Funds
Losers: Mortgage holders & borrowers with floating interest
rates, credit card holders, businesses & individuals who use
bank overdraft facilities & corporate debt issuers- who have to
borrow from the market.
7. Q. What are the available investment opportunities?
A. Government securities (Treasury bills and bonds): Currently
the 91, 182 and 364 day T-bill are at 9.7%, 12.3% & 13.6
respectively.

And the reverse is true, when the shilling stabilizes, Central

Bank reduces the CBR rate consequently reducing the interest
rates on government securities therefore Commercial Banks
invest less in Treasury bills and bonds.
Also high Treasury bill and bond rates attracts foreign capital
which in-turn strengthens the currency.
5. Q. How does all this affect consumer borrowing?
A. Increase in CBR affects consumer borrowing as follows:

Money Market Funds (MMF): Money market funds portfolio is

comprised of short term (less than 1 year) high quality liquid
debt instruments. Due to their liquid & short term nature, these
funds provide a viable investment opportunity in times of high
interest rates. Currently the highest MMF in Kenya is giving a
return of 14-18%.
Stock Market: There is an inverse relationship between interest
rates and the stock market performance. During a high interest
rate environment, when stock prices are declining, it is the
perfect time to take a long term strategy on the stock market by
taking advantage of the weakening stock prices.
8. Q. What is the interest rate outlook?
A. We expect interest rates to remain at the current levels
(T-bill rates above 10%, CBR at 11.50%) through the remainder
of the year. However we expect rates to rise in the first quarter
of 2015.
This is because the Kenya Shilling faces external pressures
in particular uncertainty around the timing of increase in US
interest rates. A rise in US interest rates will spur capital flight
from emerging and frontier economies (Kenya included) by
US companies and this will put more pressure on the Kenya
Shilling.
Also fundaments support a high interest rate environment. This
is due to the current fiscal deficit which government forecasts
at 8.7% and with Kenya Revenue Authority (KRA) revenue
collection falling below target- current shortfall so far this
financial year amounts to KES 28 billion.

The Offering:
Alpha Africa Kasha Treasury Management
Kasha is a Swahili word for Chest box-A box used to
store valuables.
The product, just like Money Market Funds invests
in short-term (less than one year) high-quality,
liquid debt instruments i.e. Commercial Bank fixed
deposits, Treasury Bills, Commercial Paper.

How to Invest
For all your queries (investment or otherwise), feel free to contact
us via email (jambo@alphafrica.com)
Visit our website (www.alphafrica.com) to learn more about what
we have on offer.
However, if you would like to speak to us directly, call us on:
Office Cell: +254 726 559 822 | +254 733 559 822.
Tel:

+254 20 259 5 448/9

Expected Returns:

18%

Minimum Investment:
Risk Profile:
Investment Type:

KES 100,000

You may also visit us at our offices situated at:

Low

Crawford Business Park

Liquid

1. Q. Why should you invest in Alpha Africa Kasha Treasury

Management?
A. Alpha Africas investment process adopts a disciplined
rigorous risk based approach that affords you consistent
attractive opportunities well adjusted for and optimized for
risk and designed to generate superior returns and offer you
regular liquidity.
Author:
Title:
Contact:
Email:

Joseph Kivuva Makau

Fixed Income Investment Analyst
0725 743 175
jmakau@alphafrica.com

4th Floor Suite 26 & 26 A

State House Road
Postal Mail can be addressed to the following:
Alpha Africa Asset Managers
P.O. Box 34530 - 00100, Nairobi, Kenya

AlphaAfricaAssetManagers
@AlphaAfrica