Tight liquidity in the money market continued to pile upward pressure on interbank rate last week, exposing smaller cash-starved commercial banks to higher cost of borrowing in the overnight window.
The rate rose 97 basis points to 8.13 per cent in the week ended October 4 compared with 7.16 per cent seven days earlier, the Central Bank of Kenya (CBK) reported in this weekly bulletin.
The lower pace of growth in the week-on-week interbank rate compared to 295 basis points, the CBK said, “underscores the fact that liquidity conditions had slightly improved in the week ending October 4”.
The interbank rate reflects the cost at which commercial banks borrows cash from each other on daily deals.
About Sh91.3 billion was injected into the market against withdrawals of Sh89.7 billion, resulting in a net liquidity position of Sh1.6 billion compared to a deficit of Sh2.3 billion a week earlier.
The marginal ease in liquidity was largely boosted by Sh55.6 billion in government payments and Sh25.3 billion in reverse repurchase agreements (Repos).
Through reverse Repos, the CBK buys government securities from banks for between seven and 28 days thereby helping stabilise cash reserves in the market.
The cash injection helped offset withdrawals of Sh45.2 billion in reverse Repos which matured in the week – meaning banks bought back government securities of equivalent amount from the CBK.
Other withdrawals during the week were Sh19.4 billion in tax payments, Sh12.7 billion in primary Treasury bills issues and Sh11.8 billion in tap sales.