Pedestrians walk past the National Treasury building in Nairobi. The Treasury has sharply cut the amount it intends to borrow in the domestic market. PHOTO | FILE
What you need to know:
The government has reduced the cash to be borrowed through Treasury bills and bonds to as low as Sh120 billion from Sh190 billion.
The reduction follows successful tapping of the sovereign bond which saw the Treasury raise an additional Sh68 billion from international investors.
A drop in government participation in the debt market leaves commercial banks, the main buyers of the T-bills and bonds, with excess liquidity forcing them to lend to the private sector at lower rates.
The Treasury has sharply cut the amount it intends to borrow in the domestic market signalling a probable drop in interest rates.
Treasury secretary Henry Rotich said the government had reduced the cash to be borrowed through Treasury bills and bonds to as low as Sh120 billion from Sh190 billion.
The reduction follows successful tapping of the sovereign bond which saw the Treasury raise an additional Sh68 billion from international investors.
“The Sh68 billion was part of the money that was to be borrowed this financial year so we have revised that (domestic borrowing target) downward to between Sh120 billion and Sh130 billion” said Mr Rotich.
A drop in government participation in the debt market leaves commercial banks, the main buyers of the T-bills and bonds, with excess liquidity forcing them to lend to the private sector at lower rates.
Currently, the indicative 91-day Treasury bill is yielding a return of 8.6 per cent while the foreign borrowing was under six per cent.
Treasury bill rate is one of the components used to calculate the recently introduced Kenya Banks Reference Rate (KBRR) which is the standard base lending rate for banks.
The KBRR is set for review in January. The rate is an average of the Treasury bill rate and the Central Bank Rate. The policy rate has remained unchanged over the past 18 months.
The 91 day Treasury bill rate dropped from 11.4 per cent as at end of June to the current 8.6 per cent.
“Interest rates are expected to drop that is why they would make that statement,” said Alex Muiruri, head of fixed income trading at Kestrel Capital.
“They are also not operating an overdraft and inflation rate has come down which boosts confidence of lower interest rates.”
The inflation rate dropped to six per cent at the end of November down from 6.4 per cent in October and 7.7 per cent in July when it had breached the upper limit set by the Central Bank.
The government has been keen on reducing the price of money to private investors to revamp a slow economy that has been affected by security concerns.
Late last year it formed a committee to look into ways of lowering interest rates whose key recommendations included reduced domestic borrowing by the government.
Mr Muiruri noted in the three months to September, the Treasury was mainly paying debt by redeeming maturing securities.
However, from October the Treasury had started taking new debt indicating it was seeing rates as stable. In the last week of November, the Treasury increased the volume of cash borrowed through the long tenor bonds by Sh50 billion to Sh955 billion.
Banks have been increasing lending to government despite the marginal downward movement in yield following a slowdown in private sector lending in the third quarter of the year.
Banks are holding 53.6 per cent of the total government securities issued equivalent to Sh672.6 billion, up from 52.4 per cent or Sh626 billion, two months ago.
Net domestic borrowing for this financial year is at Sh33.7 billion, according to research by Kestrel Capital. Short-term debt with Central Bank of Kenya is Sh15 billion, down from Sh37 billion in July.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
