Liquidity levels improved in the money market as indicated by the decline in the average interbank rate to 4.4 percent from 5.0 percent recorded the previous week.
There was a reduction in the average volumes traded in the interbank market by 18.1 percent to 12.7 billion shillings from 15.5 billion shillings the previous week.
The reduced pressure on liquidity can be attributed to the end of the monthly Cash Reserve Requirement (CRR) cycle for the month of May, which ended on the 14th.
The CRR is the percentage of deposits that commercial banks are required to keep with the Central Bank of Kenya.
It is a mandatory requirement, and Kenya’s CRR currently stands at 5.25 percent of deposits held by a commercial bank. How the CRR cycle works is that, all commercial banks are required to maintain a CRR of 5.25 percent of their deposits for a month, ending on the 14th of every month, but can let the ratio get to a low of 3.0 percent during the month, as long as the average for the month gets to 5.25 percent.
Towards the end of a cycle, banks are always under pressure to meet the requirement if they had not met it earlier on in the cycle, but after one cycle ends and another begins, the pressure on liquidity for banks reduces.
According to Bloomberg, the yield on the 5-year Eurobond issued in June 2014 increased by 30 bps to 4.8 percent from 4.5 percent the previous week.
The yield on the 10-year Eurobond increased by 10 bps to 6.5 percent from 6.4 percent the previous week. The increase during the week can be attributed to varying market sentiments from foreign investors.
Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 4.0 percent points and 3.2 percent points for the 5-year and 10-year Eurobonds, respectively, due to the relatively stable macroeconomic conditions in the country.
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