Macro-Economic Update

Highlights For The Week

The overall 12-month inflation declined for the third consecutive month
to 3.1 percent in October 2010. Similarly, the average annual inflation,
which has been on a downward trend from January this year, declined
further during the month from 4.4 percent in September 2010 to 4.1
percent in October 2010.

The Government securities market over-performed by 42.5 percent during
the auction held this week. The Government had offered for sale 91-day
Treasury bills amounting to Ksh 5.0 billion, received bids amounting to
Ksh 7.1 billion and accepted bids amounting to Ksh 5.3 billion. The average
91-day Treasury bill rate edged up 6.4 basis points to settle at 2.180 percent.
The average interbank rate stabilized at 1.00 percent in the week ending
November 4, from 1.05 percent in the previous week.

The Kenya Shilling depicted mixed performance against the major
international currencies during the week ending November 05, 2010.
Against the US dollar, the shilling appreciated marginally to exchange at
an average of Ksh 80.54 in the week compared with Ksh 80.74 in the
previous week.

The usable official foreign exchange reserves held by the Central Bank
increased to US dollar 3.492 billion (equivalent to 3.54 months of imports)
as at November 05, 2010, compared to US dollar 3.471billion (equivalent
to 3.53 months of imports) held on October 29, 2010, reflecting a shortlived
revaluation gain during the week.

The money market was liquid in the week ending November 4, 2010 and
the Central Bank stayed out of the market.

Government gross domestic debt increased by 5.7 percent from Ksh 660.3
billion in June 2010 to Ksh 698.4 billion as at October 29, 2010 in the FY
2010/11. The cumulative Government expenditure on interest and other
charges on domestic debt during the same period amounted to Ksh 21.6
billion.

Performance at the equities market declined during the week ending
November 4, 2010, with the NSE 20 Share Index losing 11 points to
settle at 4,629 from 4,640 points on October 28, 2010, while equity
turnover fell by 6.9 percent.

Inflation

Overall 12- month inflation declined from 3.2 percent in September 2010
to 3.1 percent in October 2010 (Chart A). During the month of October,
the alcoholic beverages, tobacco and narcotics basket, the health basket
and the communications basket experienced the most significant decline in
inflation by 1.6 percent, 0.8 percent and 0.3 percent, respectively.
Meanwhile, housing, water, electricity, gas and other fuels basket recorded
the most significant upward movement in 12- month inflation from 1.4
percent in September 2010 to 2.1 percent following rising prices of gas
and other fuels during the month. The food basket recorded a net decline
in inflation during the month despite varying price movements of composite
items. For instance, the prices of bread, wheat flour, milk and beef went up
while those of the more seasonal items such as kales, cabbages, and onions
fell in October 2010.

Government securities auction

The Government securities market overperformed by 42.5 percent during
the auction held this week. The Government had offered for sale 91-day
Treasury bills amounting to Ksh 5.0 billion and received bids amounting to
Ksh 7.1 billion. The Government accepted bids amounting to Ksh 5.3
billion of which Ksh 5.1 billion were competitive. The proceeds of the auction
was entirely new borrowing to support the budget.

Interest Rates on Treasury Bills

The average 91-day Treasury bill rate edged up 6.4 basis point to 2.180
percent compared with 2.116 percent in October 25, 2010