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Liquidity Strains Worsen As Average Interbank Rate Rises To 10.1%

BY Soko Directory Team · July 5, 2023 09:07 am

Liquidity strains worsened during the week with the average interbank rate increasing by 27.7 bps to 10.1 percent, from 9.8 percent recorded the previous week.

The performance was partly attributable to heavy settlements of government securities and reverse repos. However, daily traded volumes averaged 17.1 billion shillings, a 34.4 percent increase from 12.7 billion shillings from the previous week.

The table below summarizes the market liquidity indicators:

Interbank rate

The Central Bank injected a total of 92.7 billion shillings through 4-day and 7-day reverse repo purchases. The regulator received bids worth 92.7 billion shillings and accepted all the bids at the average rate of 10.2 percent as shown below;

CBK

In the debt auction space, the government through the Central Bank is seeking to raise 40.0 billion shillings via a fresh 5-year and 3.2 years reopened fixed coupon bond; FXD1/2023/05 and FXD1/2016/10.

The bond coupon rate will be market determined for the new bond while that of the 3.2-year bond is 15.0 percent. The period of sale runs up to 11^th July 2023.

“We note that the government has issued bonds with tenors aligned to the market preference. As such, we expect an oversubscription on the bonds with the high yields currently in the market being a contributing factor,” said Experts from Standard Investment Bank.

See below a summary of the offer and our recommended bidding ranges:

Yields on short-term and medium-term securities continue to rise faster than yields on long-term securities, reflecting short-term expectations of the country’s interest rate environment and the government’s heightened appetite for borrowing.

However, some upward movement was witnessed on the furthest tail of the yield curve. Specifically for Treasury Bills, the yields on the 364-day, 182-day, and 91-day papers continued to rise to 12.157 percent (+22.3bps), 11.947 percent (8.4bps) and 11.904% (+11.9bps), w/w respectively.

See below the performance of the yields on the government papers;

NSE

In other news, the Monetary Policy Committee (MPC) held an emergency meeting chaired by the new governor Dr. Kamau Thugge on Monday, 26^th June 2023, and decided to raise the Central Bank Rate (CBR) by 100 bps to 10.50 percent.

The decision was informed by what the MPC termed as sustained inflationary pressures, increased risks to the inflation outlook, and global risks which could potentially impact the domestic economy.

To that effect, the MPC highlighted the need to tighten the monetary policy space as a proactive measure ahead of underlying risks like the increase in fuel Value Added Tax that is expected to hurt inflation.

About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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