Central Bank liquidity mop-ups slow down

The Central Bank of Kenya (CBK) slowed down its liquidity mop-up in the financial markets beginning last week, with no repurchasing agreements (Repos) carried out from October 29. The last time the regulator went a day without mopping up cash from the market was October 2.

Since then, mopping has been regular ranging from about Sh1 or Sh2 billion to as high as over Sh8 billion daily, according to the CBK Weekly Bulletin. The daily mopping up has been going on even as jitters persisted in the interbank market as rates continued to climb by the day.

“As of yesterday, the CBK was also out of the market, but this only seemed to push the interbank market higher to 7.5 per cent,” Citi bank said.

READ: Interbank rates hit 7pc as firms pay consumption tax

As at October 29, the interbank rate stood at 7.43 per cent, having risen from 7.26 per cent at the beginning of the week. This was an increase from 5.8 per cent in the middle of October. It remains to be seen how the shilling reacts in the absence of the Central Bank, whose operations were partly meant to support the currency.

In a statement two weeks ago, Standard Chartered Bank head of research on Africa Razia Khan had said the monetary authority could be following “a tightening bias” without necessarily changing the Central Bank Rate.

She noted the Monetary Policy Committee had actually promised to use open market operations such as repos in pursuing a tightening bias to stem any inflationary pressure after it hit 8.36 per cent in August – passing the upper 7.5 per cent policy limit.

Inflation has in October come down to 6.43 per cent from 6.60 per cent in September. The government is currently under pressure to reduce the cost of living since it is one of the reasons cited in calls for a referendum.