This archive report was first published on 1 October 2019.
On October 1, 2019, the interbank rate in Kenya hit its highest level in nine months, with smaller banks accessing funds at a high of 10 percent.
The Central Bank of Kenya (CBK) has been offering attractive rates on repurchase agreements (repos), posing stiff competition for smaller banks.
According to Churchill Ogutu, an analyst at Genghis Capital, the CBK's rate of 8.9 percent on 7-day repos is more attractive than the 91-day and 182-day Treasury bill.
“CBK has been coming in the market at rates touching as high as nine per cent for 7-day repo. It makes more sense for banks with excess liquidity to lend to CBK than lend to tier II or III players,” said Mr Ogutu.
Mr Ogutu also noted that the Treasury's issuance of long-term papers has done little to reduce banks' excess liquidity, as they favour short-tenor papers.
“There has not been much appetite to pick up whatever the government is offering the market. The low yields on T-bills have not been making much sense either, leaving many banks awash with cash,” he said.
