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Rate on 91-day T-bill dips below 9pc for the first time in 27 months
The Central Bank of Kenya in Nairobi. The CBK is likely to be more aggressive in pushing rates lower as it addresses a contraction in private sector credit.
The return on the 91-day Treasury bill fell below nine percent for the first time since October 2022 in the latest auction as the cost of government borrowing adjusted to the latest rate cut by the Central Bank of Kenya (CBK).
In the sale, the CBK also took advantage of oversubscription to leave expensive bids on the table, helping cut the rates across all three T-bill tenors. The sale raised offers of Sh44.26 billion, out of which the CBK took up Sh25.14 billion.
The 91-day T-bill saw its rate fall to 8.96 percent from 9.11 percent the previous week, while the 182-day rate declined to 9.41 percent from 9.51 percent, and the 364-day rate from 10.75 percent to 10.59 percent.
This was the second straight week of high investor appetite for the papers, as buyers sought to lock in investments before rates tumble further following the 0.5 percentage point cut in the Central Bank Rate in the February 5 monetary policy committee meeting.
The CBK also cut the cash reserve ratio for banks from 4.25 percent to 3.25 percent, effectively freeing more than Sh57 billion in liquid to commercial banks to lend. The CRR represents the percentage of deposits that banks are required to keep at the CBK as reserves.
Ideally, the additional liquidity is expected to go towards customer loans, but banks are likely to put some of it in short-term securities as they wait for the demand for loans by the private sector to go up.
The CBK is also likely to be more aggressive in pushing rates lower as it addresses a contraction in private sector credit by 1.4 percent in the 12 months to December.
There are however headwinds to this lower interest rate outlook on the horizon, when the government passes its second supplementary budget for the fiscal year which is expected to raise the domestic borrowing target from Sh413.1 billion to Sh593.7 billion.
This will raise pressure on the CBK to accept more bids from the market to fill in the expanded domestic cash demand from the Treasury.
