Payments push interbank rate to 7-month low

Government payments supported increased liquidity in the market, pushing down bank-to-bank lending rates to nearly a seven-month low last Friday.

Data from the Central Bank of Kenya (CBK) showed that the rate — also called the interbank rate — stood at 3.28 percent last Friday compared to 3.37 percent on the previous day. The last time the interbank rate stood at lower than this level (3.20 percent) was on November 19 last year.

The monetary authority said there had been a rise in government payments during the week to Thursday when the rate stood at 3.37 percent, whose effects continued to be felt even last Friday.

As a result of the payments, commercial banks were able to retain an excess of Sh35.2 billion at the CBK vaults relative to the minimum of 4.25 percent of their total deposits as required by the authority.

“The money market was liquid during the week ending May 28, supported by government payments. Commercial banks’ excess reserves stood at Sh35.2 billion in relation to the 4.25 per cent cash reserves requirement (CRR),” said the CBK.

With the lower interbank rate, the number of deals completed increased by half while the total amount transacted doubled.

“Open market operations remained active. The average interbank rate declined to 3.37 percent on May 28 from 4.19 per cent on May 21. The average number of interbank deals per day increased to 27 from 18 in the previous week, while the value traded increased to Sh19.9 billion from Sh10.6 billion in the previous week,” said the CBK.

In line with the increased liquidity, subscription for Treasury bills exceeded 100 per cent with the bids totalling Sh24.6 billion against the offer of Sh24 billion. “The Treasury bills auction of May 28 received bids totalling Sh24.6 billion against an advertised amount of Sh24.0 billion, representing a performance of 102.5 percent,” said the CBK.