Money Market Liquidity Ups As Interbank Rate Dips

Money market liquidity improved during the week with the average interbank rate decreasing by 33.6 bps to 9.7 percent, from 10.1 percent recorded the previous week attributable to government payments that offset tax remittances.

The decline is the highest in almost six months. However, daily traded volumes averaged 9.5 billion shillings, a 44.4 percent decrease from 17.1 billion from the previous week.

The table below summarizes the market liquidity indicators:

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The Central Bank intended to mop a total of 24.9 billion shillings through 5-day, 6-day, and 7-day Term Auction Deposit in order to balance liquidity in the money market.

The regulator received bids worth 29.4 billion shillings and accepted 24.9 billion shillings worth of bids at the average rate of 8.7 percent as shown below;

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 12.250% (+9.3bps), 12.199% (25.2 bps) and 12.014% (+11.0bps), w/w respectively.

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

In other news, according to the most recent Purchasing Managers’ Index (PMI) data, Kenya’s private sector business conditions remained in the contraction zone in the month of June 2023 due to a faster increase in input prices which consequently led to an increase in output prices and a decline in new orders.

The scenario underlines the weakening of the Kenyan Shilling and elevated inflationary pressures with the rate still above the CBK target ceiling of 7.5%. The headline figure fell to 47.8, from 49.4 in May, signaling a sharper deterioration, albeit softer than the February and April deterioration.

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See below a chart showing the evolution of Kenya’s PMI;

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