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Decline in interbank rate signals lenders’ higher liquidity

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Central Bank of Kenya. FILE PHOTO | NMG

The rate at which banks lend to each other on emergency basis has dropped to its lowest in four weeks, helped by government disbursements to its agencies and departments.

Data by Central Bank of Kenya showed the interbank rate declined to an average of 4.31 percent yesterday, down from 5.1 percent two weeks ago, indicating that lenders are enjoying higher liquidity.

This is expected to spur the uptake of this month’s Treasury bond that is targeting Sh30 billion, although the government is not under pressure to borrow ahead of the close of the fiscal year at the end of the month.

CBK reopened two 20-year papers first sold in 2019 and 2012 with a coupon of 12.87 percent and 12 percent respectively.

“The money market was liquid during the week ending June 3, supported by government payments, which offset tax remittances. Commercial banks’ excess reserves stood at Sh15.4 billion in relation to the 4.25 percent cash reserves requirement (CRR),” CBK said in last week’s market bulletin.

Payments from the exchequer normally go up in June as the Treasury looks to clear pending dues before closing the year.

The government’s slower uptake of funds from the domestic debt market in the last two months has also helped push up liquidity, by leaving more cash in the hands of would be lenders.

The Treasury in May only sought Sh30 billion from the bonds market instead of the usual Sh50-60 billion bonds it had been issuing in previous months, largely due to the fact that it has been on target on the domestic borrowing target.

This is the same for the June bond, which is on sale until next Tuesday.