CBK building in Nairobi. FILE PHOTO | NMG
The higher interest rate the Central Bank of Kenya (CBK) is
offering on its short-term repurchase agreement instrument to reduce
shilling’s liquidity is
pushing down the demand for three and six-month Treasury bills.
pushing down the demand for three and six-month Treasury bills.
The rate the CBK is paying on the term
auction deposits (TAD) compared to that on 91- and 182-day T-bills, is
higher indicating to investors that they are better off surrendering
their cash to the CBK in the mop-up exercise.
The
seven-day the TAD being used by the CBK for the mop-up stood at 8.98
percent on Friday, just shy of the nine percent maximum allowed (the
prevailing Central Bank Rate)
The subscription of the
91- and 182-day T-bills has been depressed in the last two weekly
auctions, attracting total bids of Sh5.1 billion against a target of
Sh28 billion.
The three-month paper was at a yield of 6.3 percent and the six-month one was at 7.17 per cent.
“The surge in the seven-day TAD rate has been linked to the
central bank’s aggressive liquidity management owing to concerns of a
negative spillover to the already fragile shilling standing,” said
Commercial Bank of Africa in a note to clients on the fixed-income
market last week.
“As the seven-day term auction
deposit (TAD) rate continues to outpace yields on the 91- and 182-Day
papers, this has cannibalised demand for the latter’s tenors,” said CBA.
The
CBK has mopped up an excess of Sh100 billion in the past two weeks,
buffering the shilling against volatility at a time when the closing end
of the old Sh1,000 note demonetisation exercise was expected to put the
unit under pressure.
The drive by the CBK to control
the amount of Kenyan shilling liquidity has therefore sprung from the
persistent pressure that the local currency has been experiencing to the
point of hitting close to 104 units to the dollar for the better part
of this month and even exceeding 104 units last month.
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