Market News

Treasury cranks up use of CBK overdraft

CBK

The Central Bank of Kenya (CBK) building in Nairobi. FILE PHOTO | NMG

The Treasury’s overdraft at the Central Bank of Kenya (CBK)has risen to its highest level since July, indicating domestic financing pressure from amid underperformance in the Treasury bill and bond auctions.

Latest CBK data shows the drawdown on the facility stood at Sh44.9 billion at the end of November, having climbed by Sh40 billion in the last two weeks of the month.

Tight liquidity in the market amid an aggressive CBK mop-up in shilling support has resulted in lower than expected bids in the Treasury securities auctions, which has also been compounded by the regulator’s unwillingness to accept expensive bids falling above the yield curve.

Funding gap

This has left a funding gap that has forced the Treasury to turn to overdrafts since mid-November. “Low subscriptions amid increased maturities and flagging revenue performance could leave Treasury with a bigger funding gap,” said Commercial Bank of Africa in a fixed income note.

The government normally turns to the CBK for the short-term facility when it faces liquidity shortage, easing urgent payment requirements such as salaries and other recurrent expenditure including debt repayments.

Borrowing through the overdraft is by law restricted to a maximum of five per cent of the most recently audited revenues and must be repaid within 12 months of the date of borrowing.