The Kenyan Treasury reduced its overdraft facility at the Central Bank of Kenya (CBK) to Sh15 billion, the lowest level in four months, as Treasury bill rates fell below the facility's 9% interest rate in March 2019. This shift reflects a strategic move toward cheaper short-term borrowing through T-bills, which offered more favorable rates than the CBK's overdraft facility.
CBK data from February 2 showed the Treasury had systematically reduced the overdraft since it peaked at Sh63 billion in early January 2019. The overdraft, which carried an interest rate tied to the Central Bank Rate (CBR) of 9%, became less attractive compared to short-term Treasury bills. The 91-day T-bill auctioned in late February yielded 6.89%, while the 182-day bill reached 8.32%. Only the 364-day bill offered a higher rate of 9.48%.
Standard Investment Bank reported in a fixed-income analysis that domestic debt declined by 0.45% to Sh2.62 trillion during the week ending February 22, 2019, largely due to a 33.6% reduction in the CBK overdraft. The government typically uses the overdraft facility to address short-term liquidity gaps, such as salary payments and debt servicing.
Legally, borrowing through the overdraft is capped at 5% of the most recent audited revenues and must be repaid within 12 months. Treasury bill auctions in the preceding two months consistently exceeded targets, with rates declining as investors favored the lower-cost instruments.
