Rate on government paper may go up in aftermath of Brexit vote

The value of government bills may rise in the coming months due to challenges introduced by the British vote to leave the Eurozone, CfC Stanbic Bank regional economist Jibran Qureishi says in a note to clients.

The Brexit vote caused volatility in the market that saw the Kenyan financial system face liquidity and exchange rate pressures.

The Central Bank of Kenya (CBK) in its statistical bulletin last week said they used the monetary policy tools to counter the effects of Brexit on the exchange rate market.

Mr Qureishi says tight liquidity will make Treasury bond rates, which have been falling since September last year, to rise again.

“Given the extra dimension of Brexit concerns this time around, and the evident tightening of liquidity conditions, it seems clear that the CBK and Finance ministry will not be reluctant to allow rates to go up this time around,” Mr Qureishi said.

Following the initial slump in global risk assets immediately after the Brexit vote, the CBK sold US dollars in the market even as the CBK mopped up excess liquidity from the market.

The CfC Stanbic economist noted that consequently, the weighted average interbank rate increased from about 2.2 per cent in early June to 8.7 per cent last week.

Last week’s liquidity pressures was however eased by end of fiscal year government payments of Sh78.6 billion.