Analysts play down rise in Treasury bill

The interest rate on government paper rose marginally last week even as analysts said this would be contained.

Yield on Kenya’s 91-day Treasury Bill edged up to 11.434 per cent up from 11.398 per cent the previous week and up from a single digit of 9.2 at the end of November last year.

AIB Capital trader Ronald Lugalia said with a stable shilling and controlled government appetite, the rates are expected to go up slightly but would not go as far as they went last October.

Last year, when the government was under the cash crunch pressure, the 91, 182 and 364-day papers hit a high of 22.5 per cent, 22.3 per cent and 22.4 per cent, respectively.

“I do not think they will get to October levels, the government will not want it to get to the volatile levels and the shilling has achieved stability within a reasonable rate,” said Mr Lugalia.

Pressure from a depreciated shilling last year forced the Central Bank of Kenya (CBK) to raise its benchmark rate and tighten liquidity in the market.

Expectations of a rise in the US Federal reserve lending rate, which eventually went up by 0.25 per cent in December also added pressure in the interest rate environment.

The US rate, which is now at 0.50 per cent, is projected to rise to as much as another 1.0 percentage point over 2016.

“There is little possibility that the Fed rate will go up in this quarter as there is a feeling that the hike might have come too soon and the employment figures are not so good,” said Mr Lugalia.

He said pressure from the global market will not be as high as last year.

However, there is speculation that the government short-term notes might edge even higher, with Treasury facing a Sh85 billion bill of maturing debt set to be financed this month.

Inflation, which surpassed the CBK target of 7.5 when it hit 8.01 in December, is also likely to step up pressure on interest rates.