Central bank pours Sh8b into market to boost liquidity

Money Markets

 

The Central Bank of Kenya. Photo/FILE  

By BDAfrica.com REPORTER

In Summary

• The Central Bank of Kenya has poured Sh8 billion (about $91 million) into the money markets.
• The weighted average interbank lending rate rose four per cent to 10.5181 per cent on Monday.

The Central Bank of Kenya has poured Sh8 billion ($91.4 million) into the money markets after a liquidity squeeze pushed up overnight lending rates.

 

Market participants attributed the squeeze to delays in government spending.

The weighted average interbank lending rate rose to 10.5181 per cent on Monday from 10.1280 per cent on Friday, Reuters reports.

This four per cent jump over the weekend contrasts with a 0.3 per cent rise on Friday from the previous day’s average of 10.0951.

A liquidity squeeze happens when something sparks fears regarding the short-term availability of money among financial institutions. These fears cause banks to be more reluctant to lend out money to each other, often imposing higher lending requirements as they hoard cash reserves. This hoarding causes overnight borrowing rates to rise, increasing the cost of borrowing.

Minimal government spending was expected to keep liquidity tight all week holding the Kenya shilling in a narrow band against the dollar. The situation was expected to start improving in coming days due to maturing government securities.