Improved Liquidity in Kenyan Market Lowers Interbank Rates

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The interbank rate in Kenya has dropped from double-digit levels to 8.62 percent, following improved liquidity in the market. This improvement has been attributed to government spending at the beginning of the financial year, including payments to contractors and disbursements to counties and ministries. The Central Bank of Kenya (CBK) has also reduced liquidity-mopping activities in the market.

According to Solomon Kariuki, an analyst at AIB-AXYS Africa, the early fiscal year government spending and reduced open market operations by the CBK are contributing factors to the improved liquidity. The CBK’s bulletin also reported increased liquidity in the money market, with commercial banks holding an excess reserve of Sh37.4 billion relative to the cash reserves requirement.

Opinion: The drop in interbank rates due to improved liquidity in the Kenyan market is a positive development. The government’s timely payments and disbursements have provided support, and the CBK’s measures have also contributed to increased liquidity. However, there may be upward pressure on the rates in the future due to the mop-up of the bond sale in July. Addressing skewed liquidity distribution and promoting confidence in smaller lenders will be crucial to ensure stability in the banking sector and facilitate lending to the broader economy.

BDA

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