The government has cleared the entire overdraft with the Central Bank of Kenya from the beginning of this month on the back of improved liquidity in money markets.
According to CBK data, the Sh30.24 billion debt outstanding as at the end of July was cleared as of August 3.
The state has not incurred any other similar debt from the monetary authority since then having been able to raise money from the market at low rates, the data showed.
In recent months, the overdraft had hit a high of Sh56.85 billion before falling to just over Sh30 billion at the end of last month.
This came at a time of increasing liquidity with state coffers able to raise cash in treasury bill auctions and as was also been observed in the rest of the money market in a move that the CBK attributed to government payments.
Interbank rates have fallen since last week with the rate at 5.88 per cent as at last Thursday.
“The Interbank market liquidity conditions improved in the week ending August 15, 2018 supported by government payments,” said the CBK in its weekly report.
“The improved performance was buoyed by the 91 and 364-day tenors, which benefitted from the improved market liquidity as depicted by the interbank rates,” said Kingdom Securities in its weekly update of the fixed-income market.
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Recently the rates have hit a high of 9.5 per cent with last week’s average standing at 6.99 per cent. On the August 15, the rate stood at 6.20 per cent but this continued to fall to hit below six per cent last week (ending Thursday August 24).
The liquidity was also seen in the subscription of Treasury bills where nearly Sh29 billion was realised in terms of bids against a Treasury offer of Sh24 billion. In the previous week, the performance of the securities market had begun to improve with subscription slightly above the offered amount at 102.18 per cent.
The CBK said that the liquidity also had to do with the cash reserve requirement cycle that ended on August 14.
Banks are required to maintain a 5.25 per cent of their total deposits at the central bank as a prudential measure but also as a way in which the monetary authority regulates availability of liquidity in the money market.