Money Markets
By CHARLES MWANIKI
Banks have lately paid a steep price for borrowing from each other as the rate hit an eight-month high of over 10 per cent.
Lenders have resorted to the emergency borrowing, to
maintain cash positions at the Central Bank of Kenya (CBK) above the
regulatory minimum, as they surrendered taxes paid by customers to the
Treasury.
Interbank rates have risen from 8.8 per cent to
10.27 per cent over the past one-and-a-half weeks, pushing it nearly two
percentage points above the punitive Central Bank Rate (CBR) of 8.5 per
cent. Lending volumes for last week stood at Sh106.7 billion compared
to Sh75.6 billion the previous week.
Most interbank loans are for maturities of one week
or less, with the majority being overnight. Banks borrow and lend money
in the interbank market in order to manage liquidity and satisfy
regulations such as CBK cash reserve requirements.
“The market has been tight out of a combination of
factors. CBK has continued its mop-up of excess cash, and banks were
looking to beef up their cash reserve requirement (CRR),” said
Commercial Bank of Africa senior dealer Joshua Anene.
CBK, however, reported in its weekly bulletin
released last Friday that liquidity is slowly returning to the market
after being constrained in April as many companies were paying taxes and
banks surrendering cash to the government through payment for
fixed-income securities floated by the National Treasury.
“The money market was relatively liquid during the
week ending April 29, 2015, largely on account of government payments
and open market operations maturities.
Commercial banks’ clearing account balance in the
week ending April 29 had a surplus of Sh10.33 billion above the cash
reserve requirement of 5.25 per cent (Sh122.4 billion) compared with a
deficit of Sh7.34 billion recorded in the previous week,” said CBK in
the bulletin.
The government payments last week stood at Sh37.5
billion with dealers saying this was mostly in disbursement to counties.
At the same time, the relatively tight market has failed to offer as
much support to the shilling as would have been hoped.
cmwaniki@ke.nationmedia.com
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