Overnight interbank loan rate dips to 9.35pc from two-year high

What you need to know:

Banks lent to each other at an average of 9.35 per cent last week compared to 10.45 per cent the previous week.
The value of transactions fell by more than a third to Sh19.3 billion from previous Sh29.1 billion.
Last week’s rate was the highest since November 23 last year when it hit Sh19.1 billion.

The overnight cost of borrowing among commercial banks has eased slightly after touching a two-year high on skewed distribution of liquidity that deprived cash-strapped smaller lenders of cheaper emergency cash.

The Central Bank of Kenya (CBK) data shows banks lent to each other at an average of 9.35 per cent last week compared to 10.45 per cent the previous week.

The value of transactions fell by more than a third to Sh19.3 billion from previous Sh29.1 billion.

“The volumes transacted ranged from Sh8.1 billion to Sh30.4 billion during the week...The number of deals stood at 31 during the week compared to 46 deals transacted the previous week,” the CBK said.

“Liquidity in the money market increased during the week ending August 16, 2017, supported by net repo maturities and government payments.” Large banks have been accused of refusing to lend smaller financiers, citing risk, forcing them to resort to the expensive CBK window.

The cash pile or cash reserve ratio (CRR) maintained by commercial banks at CBK more than tripled to Sh19 billion from Sh6.6 billion a week earlier as the lenders moved to meet the 5.25 per cent Cash Reserve Ratio for the month ending August 14.

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Last week’s CRR was the highest since November 23 last year when it hit Sh19.1 billion. Net liquidity during the week was Sh6.5 billion.

The main sources of liquidity were treasury bills redemptions at Sh28.3 billion, reverse repurchase agreements (Sh23.7 billion) and term auction deposit maturities (Sh12.5 billion).

However, repo maturities amounting to Sh21 billion, sale of treasury bills (Sh18.3 billion), payment of taxes by banks (Sh14.2 billion) and term auction deposit (Sh10 billion) mopped up liquidity from the market.