Kenya Money and Financial Market Review June 2022

​Despite COVID-19 pandemic shocks and the devastating effects of the Russian-Ukraine war, the Kenyan economy remained resilient during the first quarter of 2022. 

The economy grew as compared to a similar period last year. The service industries like banking and insurance were some of the major drivers, with others like the agricultural sector experiencing contraction.

​Inflation in Kenya, however, rose to 7.9% in June 2022, down from 7.1% in May. The increase is linked to rising food prices and energy. The overall economic performance of the Kenyan market is expected to rebound and stabilize.

There was notable growth in the domestic credit offered to the Kenyan national government by local investors in the money and financial markets through fixed-income investments like bonds. The money market-bond turnover increased, explaining an appetite by investors to participate in the government investment issuances like bonds.

What does a rise in inflation means to my ‘idle money’ / investments?

​Due to inflation, the value of money or currency strength reduces over time. This implies that any money held with you as idle will decrease in value in the near future. 

Equally, inflation reduces the returns gained from an investment like the purchase of bonds to earn income. Now the question is if inflation negatively affects my idle money as it also affects my investments income like in bonds, why should I invest?

The answer is simple. It is safer to invest in bonds, especially during inflation, even though the returns may be eaten up by inflation due to a weakening currency strength of the shilling. 

By so doing, you are guaranteed returns than to hold up idle cash, which generates little or no income, and also face a reducing currency strength. When you consider holding idle cash as savings, inflation shrinks your savings faster than when you consider placing the funds in high yield bonds investments.

If you want to learn more, here is an article about the impact of inflation on your savings and investments.