Surprising Surge: Kenyan One-Year Treasury Bill Interest Rates Spike to 14% Despite Government’s Borrowing Cut Plans
In an unexpected twist, the interest rate on the one-year Treasury bill in Kenya soared to a remarkable 14% during the previous week’s auction. This astonishing rise occurred despite the government’s recent signal of a reduction in its domestic borrowing target—a move anticipated to alleviate the upward pressure on rates.
The auction attracted a substantial Sh23 billion in bonds spanning all three tenors, with the Central Bank of Kenya (CBK) acquiring Sh20.4 billion. However, maturities totaling Sh22.99 billion led to a net repayment of Sh2.5 billion from the issuance.
The 91-day T-bill garnered the lion’s share at Sh15.6 billion, with an average rate of 13.73%. Meanwhile, the 364-day paper secured a lesser sum of Sh2.19 billion but witnessed its rate surge to 14.01%, up from the previous week’s 13.75%.
Raising Sh2.57 billion at 13.49%, the 182-day offer rounded out the array. These escalating rates in recent weeks can be attributed to concerns surrounding the government’s substantial fiscal deficit against the backdrop of a challenging economic landscape.
Last week’s surprising upward movement persisted, even after the CBK’s announcement on August 9 that the Treasury had curtailed its domestic borrowing target for the current fiscal year from Sh586.5 billion to Sh316 billion. This move was intended to temper the high demand for domestic funds that has driven rates upwards in recent sales.
While the CBK expressed optimism regarding swift rate impact, analysts remained cautiously optimistic. They pointed out that the reduction’s effects might only be visible once securities offers are scaled down and external funding enhances.
As highlighted in a fixed income bulletin by analysts at NCBA, the government remains under domestic borrowing pressure until the inflow of external loans gains momentum. As a result, the CBK is likely to continue offering attractive rates on short-term securities to meet immediate cash flow needs.
In another financial move, the Treasury secured an additional Sh23.5 billion during the week through a tap sale of a dual-tranche bond previously sold earlier in the month. Despite investor bids totaling Sh53 billion, the State left Sh33 billion on the table due to demands for higher interest rates.
Opinion: The surge in Kenya’s one-year Treasury bill interest rates to 14% comes as a surprise amid government efforts to curb its domestic borrowing. While the market anticipated a rate reduction following the borrowing cut plans, the upward trajectory points to lingering concerns about the country’s fiscal deficit. Despite the Central Bank’s optimism, the caution expressed by analysts underscores the intricacies of rate fluctuations, reflecting the need for a comprehensive approach to manage borrowing dynamics.
This article was published by (marketnewsng).