Treasury payments raise liquidity

Liquidity in the money market has improved since December last year following government payments and debt maturities, indicating easier flow of cash for investors.

One of the liquidity measures, the average interbank rate, was recorded at 3.86 percent in the week ending January 23.

The rate was marginally higher than 3.8 percent recorded the previous week. but the average interbank rate remained way below the 2019 average of 4.3 percent.

“This is an indication of the improved liquidity position in the money markets, supported by government payments and debt maturities, with commercial banks’ excess reserves coming in at Sh28.2 billion in relation to the 5.25 percent cash reserves requirement,” the Cytonn Investments analysts said.

The average interbank volumes increased by 17.6 percent to Sh13.2 billion, from Sh11.2 billion the previous week.

The interbank rate had declined to 5.9 percent in December 2019 from 8.2 percent in December 2018.

After a year of tight liquidity, the government has been pursuing steps to improve the situation by injecting money into the private sector, especially through clearance of the pending bills and facilitating circulation of money.

In December, the National Treasury issued a directive to ministries, departments, agencies and county governments to clear all pending bills with suppliers and contractors before this January 15.

According to the Treasury, a total of Sh30.35 billion was paid by January 8, leaving an outstanding balance of Sh20.94 billion that lacks unsupported documents.

The improved liquidity was evident from Sh69.9 billion worth of bids received from investors for the five and 10-year dual-tranche bonds offered in January 22 auction, against an advertised amount of Sh50 billion. The CBK, however, accepted Sh63.75 billion in the last week auction.

The cash flow situation in the economy has been dire due to slow government disbursement especially following a crackdown on corruption.