CBK slows uptake of T-bills to keep current loan rates stable

The Central Bank of Kenya (CBK) has accepted just 60 per cent of the Treasury bill bids since the beginning of the year indicating resolve to keep current loan rates stable.

The latest CBK data shows investors bid a total of Sh36.75 billion against the offered Sh12 billion worth of 182 and 364-day Treasury bills this week, with the CBK accepting only Sh18.23 billion.

The cumulative bids for all three tenors of T-bills since the turn of the year stand at Sh137.35 billion, with the accepted amount at Sh81.2 billion.

In the Budget Policy Statement released this week, the Treasury revised down by Sh53.3 billion its domestic borrowing target to Sh168 billion, which means that the pressure to borrow has reduced at a time there are heavy maturities of domestic debt.

READ: Kenya eyes lower 6.9pc budget deficit in next financial year

Genghis Capital fixed income analyst Vinita Kotedia said the government is keeping its appetite in check to curb interest rates, meaning the decision to accept fewer bids looks like a monetary mechanism and signals calmer market conditions.

“Another factor which has promoted a downturn in interest rates is a high volume of government securities redemptions which are scheduled in the first quarter—this has promoted increased liquidity in the money market, and is effectively beginning to manage the aggressive investor bidding nature that we have experienced over the last few weeks,” said Ms Kotedia.

“We have also observed more consolidation between fiscal and monetary policy as the CBK is aligning its domestic borrowing with the revised borrowing target of Sh168 billion which, in turn is promoting lower volatility in interest rates.”

The restraint by the government in taking up funds is helping keep interest rates on the short-term debt in check, against fears in the market that the heavy maturities (and repayments) combined with a yawning budget deficit would push the rates upwards.

Interest rates on all three T-bill tenors that had climbed to a four-month high in mid-January came down this week, with the 182-day paper rate falling by 0.46 percentage points to 13.91 per cent and the 384-day paper rate reducing by 0.5 percentage points to 13.96 per cent.

READ: T-bond rates rise signals return of expensive credit

The auction results for this week’s 91-day paper had not been released by the time of going to press. The previous auction on January 28 had however seen a slight retreat in interest rate, by 0.1 percentage points to 11.8 per cent.

The CBK has signalled the market that it is concerned by the burden that higher interest rates is placing on borrowers of bank loans when it maintained both the base rate at 11.5 per cent and the Kenya Banks Reference Rate at 9.87 per cent during last month’s monetary policy committee meeting.

The combination of CBK restraint in the primary markets and the Treasury’s revision of domestic borrowing is likely to be welcomed by economists, who have called for fiscal consolidation in order to rein in interest rates.

“What we also want to see in this consolidation is the CBK rejecting high bids and reducing auction sizes, which will help curb interest rate growth. If they show desperation for funds there will be rate pressure,” said CfC Stanbic Bank economist Jibran Qureishi last week.

The Treasury has said it intends to carry out some consolidation by reducing recurrent expenditure by Sh23 billion— on costs termed as non-productive— and the development budget by Sh70 billion, with the cuts slated to be contained in the supplementary budget.