Bid to shore up shilling sees T-Bill interest rate rise

What you need to know:

  • The interest rate on the 364-day T-bill, on the other hand, rose for the first time in more than a month to 10.276 per cent this week from 10.163 per cent at last week’s auction.
  • At the latest auction this week, the interest rate on the government paper rose to 8.604 per cent, up from 8.55 per cent last week. The yield on the 182-day T-bill went up for the first time, since July 3 this year.

The government’s attempt to mop up excess liquidity from the market saw the interest rates on the 182-day Treasury bill rise for the first time in two months Thursday.

At the latest auction this week, the interest rate on the government paper rose to 8.604 per cent, up from 8.55 per cent last week. The yield on the 182-day T-bill went up for the first time, since July 3 this year.

The interest rate on the 364-day T-bill, on the other hand, rose for the first time in more than a month to 10.276 per cent this week from 10.163 per cent at last week’s auction. Although some analysts say the change is marginal, the intention is to mop up excess currency in order to support the Kenyan shilling from weakening further against the US Dollar.

“There is a perception that because of the high liquidity, the Treasury needs to take up some of that money to support the local currency,” Mr Alex Muiruri, head of fixed income at Kestrel Capital, said.

The Central Bank sought to raise Sh9 billion from the auction but the 364-day bill received a subscription rate of 126 per cent with the 182-day bill receiving a 10 per cent subscription rate. The CBK took up the Sh6.7 billion on offer. 

Analysts at Old Mutual said they expected the tightening cycle to continue in the short-term in a bid to maintain stability of the exchange rate given increased liquidity arising from redemptions and government disbursements.