This archive report was first published on 21 October 2019.
On October 21, 2019, Central Bank of Kenya Governor Patrick Njoroge oversaw a significant cash injection into the financial markets through the demonetisation of old Sh1,000 notes.
Standard Investment Bank (SIB) analysts predicted that interbank rates would likely fall as the Central Bank of Kenya (CBK) eases off on the mop-up of liquidity.
According to SIB, the mop-up of old notes, which saw Sh1,000 notes worth Sh209.6 billion exchanged for new generation ones by the end of last month, was the primary cause of the elevated bank-to-bank lending rates.
However, SIB believes that the upward trajectory in the money markets is short-term in nature and will taper off in the near term.
"Our view is that the upward trajectory being witnessed in the money markets is short-term in nature," said SIB. "As the data demonstrates, the CBK is the primary enabler of the uptick, however, we believe that it will taper off the mop-ups in the near term."
Additionally, SIB noted that government payments have been limited since the start of the fiscal year in July, contributing to the decrease in liquidity in the financial system.
The mop-ups are intended to ensure stability of the Kenya shilling and limit inflationary pressures.
