The Central Bank of Kenya headquarters in Nairobi. PHOTO | FILE
By CHARLES MWANIKI, cmwaniki@ke.nationmedia.com
The interest rate on the 10-year bond issued this
month hit 16.1 per cent beckoning more expensive credit even as the
Central Bank of Kenya (CBK) left the base lending rates untouched in
Wednesday’s MPC meeting.
The 182-day and 364-day Treasury bill issues this week also
saw yields climb yet again, by 0.46 an0.58 percentage points
respectively to 14.1 and 14.9 per cent.
The willingness by the government to pay a premium
on both the short- and longer-term debt also signals need to have the
heavy January maturities for bonds and bills rolled over as it plugs a
wide budget deficit.
Other than individual loan borrowers, the rise in
government securities’ rates will see companies looking to borrow pay a
higher premium as most corporate bonds are priced using government
bonds.
“It is clear to the market the government’s debt
maturity structure is placing upside pressure on interest rates. Large
maturities of government T- bills and bonds are prompting the market to
place higher bids at auctions and most investors would prefer to invest
in shorter duration debt in order to avoid mark-to-market losses,” said CfC Stanbic economist Jibran Qureishi.
“Naturally, corporates looking to issue debt may
have to shelve their plans for now and wait for some stability in rates
before coming to the market.”
Interest rates could come down later in the year however due to reduced inflationary pressure and a stable currency.
The government managed to raise Sh24.1 billion out
of the targeted Sh35 billion from the two- and ten-year bonds issue in
last Tuesdays auction. Investors pumped heavily into the two-year bond,
to the tune of Sh20.15 billion.
The government however left on the table Sh12.2 billion having received total bids worth Sh36.3 billion.
Bank loan borrowers will be keen going forward to
see whether the lenders will revise lending rates upwards in reaction to
the rising government securities’ rates.
The CBK gave a signal to the market that it expects
them to hold off from raising interest rates when it maintained both
the base rate at 11.5 per cent and the Kenya Banks Reference Rate at
9.87 per cent on Wednesday.
Mr Qureishi said however that the Central Bank Rate
(CBR) has typically been dislocated from other short-term interest
rates as seen towards the end of last year.
“Thus, money market rates can deviate from time to
time without the CBR adjusting. The government ought to provide a signal
to the market that they are willing to consolidate in order to taper
the rise in rates,” he said.
The other option for government remains external
borrowing, which according to the budget statement of last June was
supposed to plug more than half of the deficit
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