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Capital Markets

Treasury eyes cheaper money on T-bill rates dip

The National Treasury building in Nairobi
The National Treasury building in Nairobi. FILE PHOTO | NMG 

The Treasury is eyeing cheaper money from the domestic market after interest rate on short-term securities dipped to a seven-year low following increased liquidity in the money market.

Central Bank of Kenya (CBK) data shows rates for 90, 182 and 364-day Treasury bills fell to 6.27 percent, 6.76 percent and 7.7 percent respectively in last week’s auction.

The last time they fell this low for the three-month and six-month papers was in July 2013 at 5.76 percent and 6.48 percent respectively

The 364-day T-bills were last recorded at the current low in May 2011.

In the week’s auction, the CBK received bids worth Sh85.96 billion against an advertised amount of Sh24 billion, representing a performance of 358.2 percent. The government accepted Sh46.22 billion.

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Genghis Capital head of securities Kenneth Minjire said the high liquidity in the market had triggered an increased demand from investors and ushered in the lower yields.

The liquidity has also been kept high by the reduction of Cash Reserve Ratio (CRR) to 4.25 percent from 5.25 percent since March, which released Sh35.2 billion for commercial banks to support lending to borrowers during the Covid-19 pandemic.

Reports show that commercial banks’ excess reserves stood at Sh29.8 billion in relation to the 4.25 percent CRR last week.

The interbank rate dropped to 1.68 percent on Friday from 2.36 percent the previous day.

“The downward trajectory in the interest rates is expected to continue because of the increased money in the market, which happens toward the end of fiscal year where there is more spending by government entities and banking institutions among other investors,” Mr Minjire said.

He added that the government will be benefiting for the next few months from the rush by the investors as returns on other investment avenues remain low.

“The stock market has been subdued and investors want to stay near cash-out possibilities because yields will be higher hopefully by towards the end of the year. The fixed income market will start to earn better yields,” he said.

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