Payments for the oversubscribed seven-year infrastructure bond tightened liquidity in the money markets last week, forcing banks to turn to the Central Bank of Kenya (CBK) for Sh20 billion in the repo market.
The CBK says in its latest weekly bulletin that the excess cash reserves held by banks fell Sh1.7 billion below the 5.25 per cent statutory minimum, having stood Sh10.4 billion above the threshold a week earlier.
“Tight liquidity conditions prevailed in the money market during the week on account of payments for an infrastructure bond that was oversubscribed.
The issuance of government securities resulted in a liquidity withdrawal of Sh57.3 billion, of which infrastructure bond accounted for Sh42 billion.
In addition, tax remittances resulted in a liquidity withdrawal of Sh16.3 billion,” said the CBK.
“The resulting leakage from interbank liquidity was partly offset by government payments of Sh10.5 billion and Central Bank support of Sh20.1 billion through Reverse Repo purchases.”
The interbank rate (at which banks borrow from each other on emergency basis) however, continued falling while volumes remained flat indicating that some of the lenders looking for cash were well served in the repo market.
Before the bond auction last week, the liquidity indicators in the market were pointing to a fairly liquid market, where the CBK was making minimal interventions and only to redistribute liquidity among banks.
While the bond attracted heavy bidding, due to an attractive tax-free yield, the short-term Treasury bills suffered from lower interest.
The three tenors of T-bills raised a combined Sh18.1 billion against a target of Sh24 billion with only the 91-day paper attracting bids above its targeted amount.