Liquidity in the market has remained stable on the back of government payments including value-added tax (VAT) refunds, cutting the rate at which the lenders borrow from one another to 4.22 per cent.
Central Bank of Kenya (CBK) data shows the average interbank rate was 4.22 per cent on May 14 compared to 4.05 per cent on May 7 as market operations in the banking sector remain active.
The average number of interbank deals per day increased to 24 from 20 in the previous week, while the value traded increased to Sh11.8 billion from Sh7.9 billion in the previous week.
The interbank rate has dropped from as high as 6.29 percent and Sh2.48 billion as recorded in April 20.
“The money market was relatively liquid during the week ending May 14, supported by government payments, which more than offset tax remittances,” said the Central Bank.
The CBK said the liquidity has also been helped by reduction of the cash reserves requirement to 4.25 per cent from 5.25 per cent in March that freed Sh17.6 billion by the end of April to induce increased lending to distressed borrowers and businesses.
Commercial bank excess reserves came in at Sh36.5 billion in the week from a high of Sh53.9 billion by April 25, indicating increasingly lending activities as intended by banking regulator.
Analysts say the liquidity will remain stable as western economies reopen and remittances and export inflows regain some lost ground fueling money flows, credit uptake and investment.
“Market liquidity would remain high will the expectations of relaxed lockdown measures in export markets,” said financial risk management and investment analyst Mihr Thakar.