CBK reverses direction of short-term interest rates

CBK data however shows that investors are getting fatigued by the low yields and have slowed their bidding for government paper — causing a decline in the subscription rates in the past four weeks .

In the first week of August, the CBK realised a 61 per cent subscription rate or Sh3.6 billion for the 182-day Treasury bill against a target of Sh6 billion.

The 91-day Treasury bill performed better with a 101 per cent subscription rate netting Sh5.1 billion against a target of Sh5 billion, but the take up rate marked a steady decline from 338 per cent subscription rate in the first week of June.

The CBK was quick to reaffirm that the low subscription levels were temporary and attributable to investors staying out of the market during the August 4 referendum.

Banking sector analysts say that at the current low yields on both short term and medium term government securities, commercial banks might opt to lend to private sector and households where returns are much higher.

Bond traders say increased inflation and tightened liquidity levels may upset the current low interest rate regime.

However, inflation has been contained below five per cent though the past month saw increased pressure from the food index.