The rate at which banks are borrowing from each other on an emergency basis has climbed to a three-and-a-half-year high of 7.9 percent following a drop in liquidity in the money market on the end of tax remittances to the government.
Lenders do not borrow from the interbank market for onward lending to customers and rely on the window to meet regulatory daily cash requirements.
The movement of the rate, which was last at this level in October 2019, is, therefore, a good pointer to the liquidity situation in the banking system, a factor that ultimately filters down to determine how much the lenders have in hand to advance to customers.
“Liquidity in the money market decreased during the week ending March 30, as government receipts were higher than payments. Commercial banks’ excess reserves stood at Sh8.9 billion in relation to the 4.25 percent cash reserves requirement (CRR),” the Central Bank of Kenya said in its latest weekly markets bulletin.
The reduced liquidity points to difficulties ahead in the government’s borrowing plans from the domestic market for budgetary purposes.
It has caused a drop in subscription levels in the weekly Treasury Bill auctions, which were attracting ample demand just a few weeks ago.
In last week’s auction, the three-tenor sales that were targeting Sh24 billion raised bids worth Sh8.3 billion, representing a performance of 34.4 percent.
A similar under subscription is anticipated in this month’s Treasury bond, which is targeting Sh50 billion through a dual-auction sale, the first of which is a reopening of a 10-year paper first sold in 2018.
This first tranche is being auctioned on Wednesday, and is seeking Sh20 billion.
