Interbank rate rises on Christmas cash demand

The Central Bank of Kenya headquarters in Nairobi. FILE 

By GEOFFREY IRUNGU

In Summary

• In its latest update on the financial markets, CBK said the interbank rate rose to 6.45 per cent on the eve of Christmas Day compared to 4.22 per cent at which it closed the previous week.
• The amounts transacted in the interbank market nearly doubled to Sh20 billion and banks paid as high as 12.26 per cent to receive cash from the CBK through reverse repos (or repurchasing agreements).
• Despite the rise in the interbank rate and the doubling of transaction volumes, the CBK described the markets as “relatively liquid”, noting that banks still had some excess cash deposited at the central bank on the basis of the 5.25 per cent cash reserve ratio requirement.

Overnight lending rates among commercial banks rose over two percentage points last week as demand for cash shot up ahead of Christmas festivities, the Central Bank of Kenya (CBK) says.

In its latest update on the financial markets, the regulator said the interbank rate rose to 6.45 per cent on the eve of Christmas Day compared to 4.22 per cent at which it closed the previous week.

The amounts transacted in the interbank market nearly doubled to Sh20 billion and banks paid as high as 12.26 per cent to receive cash from the CBK through reverse repos (or repurchasing agreements).

In terms of average rates, the CBK said in the first three days of last week the interbank rate was at 5.26 per cent up from the previous week’s average of 4.43 per cent.

“The volumes transacted in the interbank money market increased to Sh19.54 billion from Sh10.95 billion traded in the previous week,” said the CBK.

The upward pressure on short-term interest rates was also evidenced by last week’s outcome in the T-bill market.

The 91-, 182- and 364-day T-bill rates went up by between 0.2 and 0.6 percentage points to stand at 10.4, 12.3 and 12.7 per cent respectively.

Cytonn Investments said that investors were keen on keeping their current concentration on short-term investments.

“For the second week running, the 91-day T-bill was oversubscribed, an indication of investors’ preference to keep short on duration. Yields on treasury bills were on an upward trend,” said Cytonn in its latest market update.

Despite the rise in the interbank rate and the doubling of transaction volumes, the CBK described the markets as “relatively liquid”, noting that banks still had some excess cash deposited at the central bank on the basis of the 5.25 per cent cash reserve ratio requirement. The regulator said Sh80.4 billion was injected into the markets from various sources to neutralise withdrawals amounting to Sh76.6 billion.