Interbank Rate Slightly Declines Supported By Government Payments

During the week, liquidity eased in the money market with the average interbank rate declining to 4.1 percent, from 4.2 percent recorded the previous week, supported by government payments.

The average interbank volumes increased by 66.5 percent to 12.9 billion shillings from 7.8 billion shillings recorded the previous week.

The improved liquidity in recent weeks has also partly been attributable to the reduction of the Cash Reserve Ratio (CRR) to 4.25 percent, from 5.25 percent previously, by the Monetary Policy Committee (MPC) during its March 2020 sitting.

The decision by MPC freed up 35.2 billion shillings to provide additional liquidity to commercial banks for onward lending to distressed borrowers during the COVID-19 pandemic.

According to the Central Bank of Kenya, the reduction of the CRR in March 2020 had by the end of April 2020 freed 17.6 billion shillings, which was granted to 11 commercial banks and 1 microfinance bank to be used for onward lending to distressed borrowers.

Commercial banks’ excess reserves came in at 36.5 billion shillings in relation to the 4.25 percent cash CRR.

Kenya Eurobonds

During the week, the yields on all the Eurobonds increased marginally owing to the markets reacting to the news by the International Monetary Fund (IMF) raising Kenya’s risk of distress to high from moderate.

According to Reuters, the yield on the 10-year Eurobond issued in June 2014 increased by 0.8 percentage points to 9.7 percent, from 8.9 percent recorded the previous week.

During the week, the yields on the 10-year and 30-year Eurobonds issued in 2018 increased by 0.8 percentage points and 0.5 percentage points to 9.4 percent and 9.5 percent respectively, from 8.7 percent and 9.0 percent recorded the previous week, respectively.

During the week, the yields on the 7-year and 12-year Eurobonds issued in 2019 increased by 0.9 percent points and 0.7 percentage points, to 9.6 and 9.9 percent respectively, from 8.6 and 9.2 percent recorded the previous week, respectively.