The bank-to-bank lending rate nearly tripled on tighter liquidity due to tax remittance deadline and payments for government securities.
Central Bank of Kenya (CBK) data for last week quoted the inter-bank rate at 4.69 per cent, a steep rise from 1.62 per cent the previous week.
The rise was further fuelled by a drop in the lenders’ Central Bank reserves.
“The money market was tight during the week ending April 18, mainly due to tax remittances and payments for government securities,” the Central Bank noted.
“Commercial banks’ excess reserves had a shortfall of Sh5.7 billion in relation to the 5.25 percent cash reserves requirement (CRR).”
During the week, the average number of interbank deals increased to 22 from 14 while the value traded more than doubled to Sh16.2 billion from Sh5.9 billion recorded in the previous week.
Interbank activity report for last Thursday showed that some banks borrowed at as high as five per cent.
Tight liquidity was also manifested in the performance of Treasury bills auction. Against an advertised amount of Sh24 billion, Sh21.3 billion worth of bids were received.
This represented 88.7 per cent performance rate as interest rates on 91, 182, and 364-day Treasury bills declined marginally. It was a decline from 148.1 per cent oversubscription, recorded the previous week.
“The decline in subscription rate was attributable to low liquidity levels in the money markets following the cyclical liquidity tightness due to the start of the new CRR cycle,” Cytonn Investments noted in a weekly note