Latest 182-Day T-Bill Issuance Sees Largest Decline In Over 2 Years

Money market liquidity improved during the week with the average interbank rate falling a further 129.2bps to an average of 10.3% compared to a 542.9bps reduction in the prior week to 11.6%. Compared to the prior week, volumes improved slightly, rising 6.7% to KES 22.4 bn, from KES 21.0 bn.

In the recent past, interbank rates have oscillated within high levels last seen in 2015 which saw the Central Bank chip in with measures to address the high volatility in the money market, ensuring that the interbank rate closely tracks the CBR.

The Monetary Policy Committee on 9^th August 2023 approved changes to improve the transmission of monetary policy based on inflation targeting and introducing an interbank rate interest rate corridor around the Central Bank Rate (CBR) set at CBR  2.5%; essentially ensuring that the interbank rate, as an operating target closely tracks the CBR.

Read Also: Stanbic Disbursed KSh 76 Million In Grants To Over 400 MSMEs

To improve access to the Discount (Overnight) Window, the applicable interest rate on the facility was reduced downwards from 600 basis points above the CBR to 400 points above the securities subject to a haircut of 10% and 20% for Treasury Bills and Treasury Bonds, respectively (with no other administrative encumbrances).

During the week, T-bills were oversubscribed with the overall subscription coming in at 186.2%, down slightly from 199.7% recorded the previous week.

The oversubscription was largely attributable to liquidity in the money market coupled with the relatively high attractive interest rates in the domestic market. The Central Bank received KES 44.7 bn in bids and accepted 97.5% of the amount.

Read More:

• Demystifying Bonds: Your Path To Financial Security
• The Riches of Attending The NCBA-KMI Motor Show

Demand for the 91-day paper remained the highest, with the paper recording a subscription rate of 955.7% down slightly from the record high of 1,044.6% in the prior week.

The subscription rate for the 182-day and 364-day papers came in at 38.6% and 25.9%, respectively, reflecting investors’ preference for short-term government securities although improvement was noted in the 364-day paper.

An additional surprise was the 16.23bps fall in the 182-day T-Bill rate to 13.3%, the largest fall in over two years. There was little participation for the competitive bidders, but this could signal a potential plateauing of rates.

The yield curve continues to invert within medium-term assets, intensifying the inversion as short-term rates continue to climb faster than medium- and long-term yields.

Read Also: Kenya Breweries Enters Deal To Start Buying Sorghum From Murang’a

This reflects short-term forecasts for the country’s interest rate environment and the government’s increased borrowing appetite. However, given the reduced domestic borrowing target and falling inflation, we anticipate that interest rates will start to peak.

In market news, Kenya Revenue Authority (KRA) has collected KES 155.1bn for the first month of FY23/24 financial year. While revenue is up a commendable 18.7% compared to July 2022; we worry that it is too early to confirm that the revenue increase run rate will sustain for the rest of the year.

Higher revenues are an important lever expected to narrow the fiscal deficit considerably in coming years, touted by the Kenya administration as a panacea to the challenges bedeviling the economy on the back of sustained spending increases over the last decade.

July 2022, the base used to calculate the increase, had the lowest revenue collection in the last financial year (ahead of the August 2022 elections). The other month with low revenues tends to be February (2023) – which has fewer days on average compared to other months.

Read Also: Dear You, Here’s How To Make Millions From Onions