Commercial bank deficits in settlement accounts at the Central Bank have narrowed. PHOTO | FILE | NATION MEDIA GROUP
What you need to know:
Market watchers will want to see whether or not the regulator today rolls over the one-week Sh30 billion reverse repos injected on Tuesday last week.
New county payments and Central Bank of Kenya (CBK) interventions have pushed interbank borrowing rate below 10 per cent for the first time since the end of July. The short-term rates at which banks borrow from each other had shot up to as high as 15.5 per cent at the beginning of last week, saddling cash-short banks with huge costs.
Market watchers will want to see whether or not the regulator today rolls over the one-week Sh30 billion reverse repos injected on Tuesday last week, boosting liquidity and taming the rising interbank rate.
The decision on whether to roll over or retire the injection will show if the CBK is comfortable enough with the liquidity levels as counties cash is released following a Sh29 billion loan agreement with the central government last week.
The Treasury head Henry Rotich has indicated they recently released Sh25 billion to contractors .
“The tightness in the market that we have been having is no longer there, also in addition to the reverse repo we believe some of the government payments went through on Thursday and Friday,” said Bank of Africa dealer Robert Gatobu.
The national government last week reached a deal with county governments to advance them money to cover their immediate cash requirements. The cash crisis had been caused by a delay in the enactment of the Division of County Revenue Bill that sets the allocation to the counties.
As a result of the liquidity crunch, commercial bank deficits in the settlement accounts at CBK—in relation to the monthly average cash reserve requirement of Sh110 billion (5.25 per cent)—narrowed to Sh28.5 billion by last Friday compared to Sh41 billion recorded in the previous week.
Offers for government short-term papers had also been affected by the cash crunch with the 91-day and 182-day Treasury bill offers for last week once more failing to realise full subscription. In the last auctions of Sh4 billion each, only bids worth Sh1.25 billion and Sh620 million were received for the 91-day and 182-day T Bills, offered at 8.2 and 8.6 per cent respectively.
The longer term Sh4 billion 364-day paper at 10.2 per cent however managed to attract bids worth Sh4.5 billion. Fixed-income analysts see the yield differential narrowing as the market situation normalises.
“The possible scenario going forward, provided government spending resumes, is where CBK introduces the repo mop-up at the CBK base rate thus pulling three month and six month yields higher—closer to the 364-day that’s reluctant to close its gap to the 182-day yield,” said Kestrel Capital fixed income analyst Alexander Muiruri.
According to Mr Muiruri, going into the fourth quarter of the year the yield curve will likely be falling between 8.8 per cent and 9.50 per cent for the three debt notes.
The shilling meanwhile weakened slightly yesterday under pressure from end month demand from importers, with commercial banks quoting it at 88.45/55 up from Friday’s 88.40/50.
CBK quoted the shilling at a mean of 88.43 to the dollar, lower than Friday’s 88.38. The volatility in the currency forced CBK into injecting an unspecified amount of dollars into the market on the same day it came in with the Sh30 billion reverse repos last week.
Traders expect the local unit to be range bound at between 88.20 and 88.50 this week given that the importer dollar demand will decrease going into the month.
