Liquidity set to improve as CBK cuts borrowing from domestic market

Treasury building in nairobi. FILE PHOTO | NMG 

By JAMES NGUNJIRI

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Summary

• The overall subscription rate of 186 per cent was indicative of a liquid market. Banks, who are the biggest lenders to the government in the domestic market, are now left holding the excess cash which is likely to find its way to the private sector in coming weeks.
• Analysts had earlier in the week said the healthy bids on the one-year tenor could be attributed to banks preference of Treasury bills as they await clarity of either a repeal or review of the interest rate law.
• The 91-day paper received bids worth Sh9.2 billion against an offer of Sh4 billion.

Liquidity in the money market is expected to improve in coming weeks after the CBK kept to its promise this week of limiting domestic borrowing to cover maturing debt.

The government is under no borrowing pressure at this point of the financial year, having already borrowed Sh282.1 billion in from the domestic market against a target of Sh268.7 billion.

The Treasury rejected bids worth Sh23.3 billion from investors who had bid Sh44.6 billion in last week’s auction. The Treasury accepted bids worth Sh21.3 billion, matching the redemptions of Sh21.4 billion. The lack of demand for money by the government is also pulling interest rates downwards, latest CBK data shows. “Yields for the 91-, 182-, and 364-day papers came in at 7.94 per cent, 10.19 per cent and 11.08 per cent respectively, compared to 7.94 per cent, 10.23 per cent and 11.1 per cent respectively in the previous week,” said CBK.

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The overall subscription rate of 186 per cent was indicative of a liquid market. Banks, who are the biggest lenders to the government in the domestic market, are now left holding the excess cash which is likely to find its way to the private sector in coming weeks.

Analysts had earlier in the week said the healthy bids on the one-year tenor could be attributed to banks preference of Treasury bills as they await clarity of either a repeal or review of the interest rate law.

The 91-day paper received bids worth Sh9.2 billion against an offer of Sh4 billion. The Treasury accepted Sh7.2 billion. The Sh10 billion 182-day paper saw bids of Sh11.7 billion with an acceptance of Sh5.6 billion. The 364-day paper attracted bids worth Sh23.7 billion against an offer of Sh10bn, with the Treasury accepting only Sh8.4bn from investors.

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