CBK data shows the rate —interbank rate used for emergency borrowing — fell to 1.41 percent on Tuesday, the lowest level seen since the beginning of March 2011.
The lowest recent rate was 1.7 percent recorded mid last month.
Fixed income analysts say the conditions are likely to persist in the short term amid heavy and steady maturities of government debt, at a time when credit absorption on the side of the private sector remains low.
The rate at which banks lend each other has fallen to an eight-year low as shilling liquidity in the market remains high, leading to over-subscription in the government securities auctions.
Latest Central Bank of Kenya (CBK) data shows the rate —interbank rate used for emergency borrowing — fell to 1.41 percent on Tuesday, the lowest level seen since the beginning of March 2011.
The lowest recent rate was 1.7 percent recorded mid last month.
Fixed income analysts say the conditions are likely to persist in the short term amid heavy and steady maturities of government debt, at a time when credit absorption on the side of the private sector remains low.
“The abundant cash conditions have continued to elevate demand for government securities while keeping pressure on yields south-bound,” said Commercial Bank of Africa in a fixed income note.
The clamour to lend to the government saw investors take the rare option of pricing a tap sale at a lower rate than that of the initial sale in last month’s bond issue.
Tap sales normally get the same rate as the average of the initial sale. The government was in the market to tap the two-and 15-year bond issued in January, seeking Sh12 billion but getting bids worth Sh66.6 billion.
On the two-year tranche, the weighted average rate for the tap sale came in lower at 10.33 percent compared to 10.7 percent for the initial sale.
“This Illustrates the significant liquidity that banks are holding to a point of undertaking price cuts,” said Kingdom Securities analysts in a note.
The CBA analysts say the move might push banks to lend more to their customers.
The shilling has, on the other hand, defied the high liquidity in the past two weeks to gain against the dollar.
Periods of high liquidity normally put a strain on the currency due to market supply and demand forces, but this time round analysts say the currency is being supported by heavy dollar inflows that are not matched by demand for the greenback by corporate local buyers.
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