Banks lent to each other at an average interest rate of 1.71 percent last Friday, the lowest point since March 2011, driven by improved liquidity and comfortable reserves position.
Data from Central Bank of Kenya (CBK) covering the lead up to Friday showed that daily interbank rate was on a declining trend, sending the average to 3.74 percent.
“The money market was liquid during the week ending January 10, partly due to government payments, which offset tax payments in the week,” said the CBK.
The average number of interbank deals remained relatively stable at 20 compared to 21 in the previous week, while the average interbank volumes traded fell to Sh10.1 billion from Sh12.1 billion, according to CBK.
Genghis Capital analysts further linked the decline in average interbank rate to the opening of schools for the first term.
“The average interbank rate declined…supported by the high government payment and the cyclical school fee payment flowing through the banking system,” said the analysts in a note.
Total interbank volume increased marginally by 4.08 percent to Sh50.44 billion. Standard Investment Bank (SIB) said the rise was partly because there was a New Year’s holiday the previous week and partly due to increased liquidity.
“As a result of increased liquidity in the market following government payments, the average inter-bank rate dipped by 179 basis points week-on-week to a seven-week low of 3.74 per cent,” said SIB.
Over half (Sh6.85 billion) was borrowed at between one per cent and 1.5 per cent signaling improved liquidity position. Commercial banks’ excess reserves stood at Sh17.3 billion in relation to the 5.25 percent cash reserves ratio (CRR) requirement, giving banks a comfortable position.
Prior to last week’s performance, the last time weekly average fell below three per cent was in in June 9, 2016 when it stood at 2.59 per cent.