Capital Markets

Scarce shilling pushes interbank rate to 7.4pc

cbk

The Central Bank of Kenya building in Nairobi. file photo | nmg

Scarcity of the shilling last week pushed the rate at which commercial banks borrow from each other to over seven per cent for the first time this year.

As of last Friday, the interbank rate stood at 7.36 per cent according to data from the Central Bank of Kenya (CBK), up from just below five per cent at the end of the previous week with dealers saying many financial institutions were hard pressed for local cash.

Analysts said pressure on the interbank market has been building since towards the end of December 2017, because banks were out to accumulating reserves in Kenya shillings to meet CBK reserve requirements.

At the same time, the local currency scarcity was also pushing the shilling stronger against the dollar, hitting below the Sh103 to the green back in the course of last week.

“Just as the shilling continued to strengthen we have noted that the interbank market has also been seeing quite some tightness and we see the situation remaining the same until cash begins to flow into the market in large amounts,” said a commercial bank dealer who declined to be named because he is not authorised to speak on behalf of the firm.

READ: Small banks take up costly credit as liquidity tightens

Analysts at Genghis Capital said skewed liquidity caused the CBK to intervene.

“Citing a skewed liquidity market on [last] Thursday’s session, the CBK intervened with Sh10 billion reverse repo and received Sh6.10 billion at an average 10.00 per cent,” said Genghis.