| Old Mutual, Kenya’s largest
asset managers, are predicting the return of high interest rates citing the rising budget
deficit as reason. In the short-term, the fund says,
interest rates may remain low supported by donor inflows. However, the firm says in its
latest market review, expanding deficit coupled with rising inflationary pressures is
expected to see interest rates rise in the long term.
Mr Rick Ashley, the company’s chief executive, says
the Government’s financial position has also remained weak and will have a negative
impact on interest rates that have remained low in the first half of the year.
"Current macroeconomic framework supports the view
that domestic debt will rise substantially in the current fiscal year, exerting upward
pressure on interest rates," Ashley says in the report launched last week.
Real interest rates are expected to remain negative,
challenging the sustainability of interest rates at current levels of inflation and
budgetary deficit in the medium to longer-term.
Ashley says that even though the economy has consistently
failed to record the expected growth figures, companies will return to profitability
ushering in a high dividend period for shareholders.
"Our Corporate earnings forecasts remain robust
despite the subdued economic environment," the report says.
The corporate earnings will be good news for the banking
sector, where first quarter pre-tax profitability showed a 6 per cent decline. This was
attributed to decline in interest income.
Ashley said that the overall lending portfolio of the
banking industry increased by 10 per cent in the first quarter, signaling increased
economic activity.
Old Mutual says Kenya’s GDP will grow at 2.5 per cent,
well below the official forecast of 3 per cent due to market volatility driven by
constitutional review stalemate.
The market is also anticipating a return to high public
spending in the second half of the year, which should stimulate consumption and
employment. |
