The Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG
The Central Bank of Kenya (CBK) has attributed the recent rise
in interbank rates and volumes to the payment of taxes that normally
begins from 20th of every month.
Companies pay value
added tax (VAT) just about a week to the end of every month, thereby
causing accumulation of cash at the CBK vaults at the expense of the
banking system that has to scramble for what remains.
As
at the end of last week, the interbank rate was on average up by over
one percentage point while volumes rose by more than Sh3 billion.
While
the rate averaged 6.53 per cent against 5.73 per cent the previous week
with the highest at 7.36 per cent, the volume rose to Sh16.5 billion
compared to Sh13.5 billion the previous week.
“The interbank market was active during the week ending January
24, 2018 with traded volumes increasing to an average of Sh16.51 billion
as banks sought funds for tax remittances,” said the CBK in its weekly
bulletin.
Bankers
have had a difficult time managing liquidity in the past two weeks,
also due to the cash reserve requirements that obligate them to keep at
least 5.25 per cent of customer deposits with the regulator as a
prudential measure.
The institutions are allowed to
let the amount fall below the legal requirement for a while but
liquidity shortage often makes it difficult for small financial
institutions.
The liquidity has also affected the value
of the shilling with the value of the currency strengthening in the
past week to below Sh103 to the dollar.
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