Liquidity Eases In The Wake Of Pending Bills Payment, Tax Refunds

Liquidity eased in the money market last week with the average interbank rate declining to 4.1 percent, from 4.5 percent recorded the previous week, supported by pending bill payments and tax refunds.

The improved liquidity is also partly attributable 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 reduction of Cash Reserve Ration 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 39.9 billion shillings in relation to the 4.25 percent cash CRR. The average interbank volumes decreased by 43.0 percent to 7.8 billion shillings, from 13.6 billion shillings recorded the previous week.

Kenya Eurobonds

During the week, the yields on all the Eurobonds declined marginally.

“We, however, anticipate investors to continue attaching a higher risk premium on the country due to the anticipation of slower economic growth attributable to the coronavirus pandemic,” said Cytonn in their weekly report.

As a result of the recent downgrade by Moody’s where Kenya’s sovereign credit outlook was changed to negative from stable according to Reuters, the yield on the 10-year Eurobond issued in June 2014 decreased by 0.6 percentage points to 8.9 percent, from 9.5 percent recorded the previous week.

During the week, the yields on the 10-year and 30-year Eurobonds issued in 2018 decreased by 0.4 percentage points and 0.3 percentage points to 8.7 and 9.0 percent, respectively, from 9.1 and 9.3 percent recorded previous week, respectively.

During the week, the yields on the 7-year and 12-year Eurobonds issued in 2019 decreased by 0.7 percentage points and 0.2 percentage points, to 8.6 and 9.2 percent, respectively, from 9.3 and 9.4 percent recorded the previous week, respectively.