The Central Bank of Kenya in Nairobi. FILE PHOTO | NMG
By KEPHA MUIRURI
The value of collateralised borrowing between banks, represented by the horizontal repo market, has reached Sh9.8 billion after Central Bank of Kenya (CBK) led
interventions.Data from the CBK daily interbank lending activity reports has shown the resurgence of the horizontal repo market- the market through which lenders borrow and lend from each other by offering government securities as collateral.
The horizontal repo market was reinvigorated at the end of July when the CBK activated its DhowCSD platform- an upgrade on the Central Securities Depository infrastructure.
Read: Banks to use Treasury bonds as loan collateral
Already, the CBK had tipped the revamp to enhance the efficiency of trading in government securities including collateralised borrowing among banks.
“DhowCSD will improve the functioning of the interbank market by facilitating collateralised lending amongst commercial banks and further reduce segmentation in the interbank market,” CBK stated previously.
Deals under the horizontal repo market had an average interest rate of 14.19 percent to sit above the interbank-lending rates but below the premium of 14.5 percent representing the lending rate from CBK’s discount window.
This means that banks unable to access funding from the cheaper daily interbank market can utilise holdings of government securities to access funding from peers, a less costly option in contrast to tapping liquidity from the lender of last resort.
CBK followed the revamp of the central securities infrastructure with the introduction of an interest rate corridor around the Central Bank Rate in a move aimed at not only ensuring a better transmission of monetary policy but also mediating lower interest rates in interbank lending.
The corridor was set at 2.5 percent, above or below the prevailing policy rate while the CBK further trimmed the interest rate on its discount window from 16.5 to 14.5 percent.
Interest rates on interbank lending have subsequently fallen within the guidance corridor reversing the previous higher yields which were in instances greater than the premium charged on the CBK discount window.
The horizontal repo market is part of CBK’s open market operations which refers to actions by the apex bank involving purchases and sales of eligible government securities to regulate the money supply and the credit conditions in the economy.
Read: Micro-financiers hit SMEs with up to 32pc interest rates
“Horizontal repos are modes of improving liquidity distribution between commercial banks under CBK supervision,” CBK notes.
→ kmuiruri@ke.nationmedia.com
No comments :
Post a Comment