Interest rates on government paper went down for the first time in weeks, signalling increased liquidity in the money markets and a glimmer of hope for suffering private borrowers.
In the latest auction on Wednesday, the 182-day Treasury bill (T-bill) was sold at 21.028 per cent, down 1.283 percentage points compared to last week.
For the 364-day paper, the rate was 21.212 per cent, which was 1.151 percentage points down compared to the previous auction. The government was looking for Sh8 billion, but ended up getting nearly eight times that amount - Sh60 billion - in subscription.
The decline in rates comes barely a week after the Governor of the Central Bank of Kenya Patrick Njoroge said the monetary authority would gradually bring interest rates down.
“We want to give the economy a soft landing. We will engineer all the interest rates down gradually. We don’t want a situation where you have been accelerating the car and then apply brakes suddenly. You want to bring the rates down over some time,” said Mr Njoroge.
He added that the CBK would not want to bring the rates down too quickly as that would destabilise the money markets that have seen rising rates for months.
The fall in T-bill rates also came amid increased liquidity in the market which has seen interbank rates fall from a high of 26 per cent a few weeks ago to the current 14 per cent.
National Treasury secretary Henry Rotich said the long-awaited mobile phone-based Sh5 billion bond, with Sh3,000 as the lowest denomination in subscription, had been postponed to await a fall in interest rates.
“We are waiting to see how rates in the market behave before we set an appropriate date,” said Mr Rotich.
The CBK reported that the money market was liquid after the monetary authority injected a net of Sh72 billion in the course of last week, even though this was mainly to the advantage of a few banks.
The injection of liquidity came in the form of repo maturities, reverse repo purchases, redemptions of T-bills and bonds and government payments.
“The money market was relatively liquid during the week ending October 21. However, the liquidity was skewed in favour of a few banks,” said the CBK.
As a result of the increased liquidity, even commercial banks exceeded the minimum requirements for cash deposits kept in their clearing accounts at the CBK.
“Commercial banks’ clearing account recorded a surplus of Sh25.97 billion in relation to the cash reserve requirement of 5.25 per cent (equivalent to Sh130.9 billion) in the week ending October 21,” said the CBK in its weekly report.