Money Markets
The Central Bank of Kenya. The Treasury has cut its overdraft at the CBK by Sh17 billion this month. PHOTO | FILE
By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com
In Summary
The Treasury has cut its overdraft at the Central
Bank of Kenya by Sh17 billion this month in a move money markets experts
say could signal determination to lower interest rates.
CBK’s latest figures show that the reduced borrowing now
stands at a one-year low of Sh13 billion, down from Sh31.2 billion at
the beginning of August.
The overdraft has traditionally been used to meet
funding shortfalls caused either by short term debt (T-bill) redemptions
or distortions arising from government spending.
The maximum overdraft that the Treasury can draw
from CBK currently stands at Sh39.1 billion, being five per cent of the
last audited annual national revenue.
“Paying down the overdraft reflects a decline in
domestic borrowing demand. The move is also a pointer to a directional
move with a bias toward lowering interest rates in general,” said
Kestrel Capital head of fixed income market Alexander Muiruri.
The Treasury had last drawn the maximum amount at
the beginning of July, when the government needed funds for recurrent
expenditure at the beginning of the new financial year.
The steady cutback on this facility is indicative
of an improved cash position combined with inflows from other debt
instruments.
Commercial Bank of Africa Senior dealer Joshua
Anene said the lower overdraft is also reflects the Treasury’s limited
disbursement of government funds in the past month, a situation which
has tightened the liquidity in the money markets, pushing interbank
rates upwards given that banks have been remitting tax revenues at the
same time.
“It is a good signal to the market because it gives
Treasury room to borrow if there are pressing short term monetary
needs. However the gains they would make in bringing down interest
rates may be undone by the high interbank borrowing rate which will
discourage banks from passing on the lower cost of credit to borrowers,”
said Mr Anene.
Overdraft is a short-term debt instrument normally
not directed to development expenses but rather recurrent obligations
like payment of wages.
The overdraft now constitutes just one per cent of the country’s total domestic debt of Sh1.281 trillion.
“However, given the heavy T-bill maturities in
September 2014 we expect the overdraft to revert upward next month,”
said Mr Muiruri.
The cut in overdraft has contributed to a reduction
in total domestic debt by Sh9 billion to its lowest level since the end
of June when it stood at Sh1.25 trillion.
The Treasury is normally charged an interest rate
equivalent to the Central Bank Rate (CBR), currently at 8.5 per cent.
This means Treasury would find it cheaper to borrow through the 91-day
Treasury bill whose rate has come down to 8.23 per cent although last
week’s issue of Sh4 billion returned zero bids at that price.
No comments :
Post a Comment