Interest rate on Kenya’s 91-day Treasury bill has increased to a three-year high following the central bank’s decision to raise its benchmark lending rate by at least 3 percent.
Interest rate on the paper in the auction dated Monday stands at 11.6 percent, up from an average of 8 percent about two months ago.
The rate averaged about 8 percent for close to two years as the Central Bank of Kenya (CBK) maintained its indicative rate at 8.5 percent due to a favorable macro-economic environment. Over the past two years, inflation ranged between 5 and 8 percent while the shilling was strong against the major world currencies, exchanging at an average of 96 shillings against one U.S. dollar.
However, the local unit has recently weakened against the dollar, exchanging at 103 shillings for one dollar, prompting the CBK to raise its benchmark rate in bid to tighten liquidity in the country.
The regulator normally mops up excess cash in the market through the sale of Treasury bills and bonds. The raising of the benchmark rate has helped push up interest rates on all the government paper.
However, the 91-day Treasury bill has benefited most, with the rate rising by over 3 percent to a three-year high of 11.6 percent.
During the period, interest rates on the 182-day and 364-day have equally risen, but not as fast as those of the 91-day bills.
Yields on the 182-day bill stands at 12.2 percent in the auction dated Aug. 24, up from 11.9 percent in the previous auction. Interest rate on the bill has increased marginally, rising from an average of 11 percent since the CBK started to raise its benchmark rate.
On the other hand, interest rate on the 364-day bill stands at 13.04 percent in the auction dated Aug. 24, up from 13 percent. The yield has remained almost stagnated since the CBK increased its benchmark rate.
High interest rate on the government papers normally attracts investors to the debt market as they seek to cash in on better yields. However, of all the government papers, the seasonal Treasury bonds are offering the best returns as yields have risen to a high of 17 percent.
The government last week put on sale a two-year bond worth 196 million dollars, whose yield stood at 17 percent, rising by 4.2 percent from the last auction in June.
The bond attracted bids worth 190 million dollars as investors appetite soared. This week, the CBK has put on sale 91-day Treasury bills worth 29 million dollars, 182-day bills worth 39 million dollars and a similar amount for the 364-day bill.
Analysts expect yields on all the government papers to continue with an upward trend as long as the CBK rate remains high to cushion the shilling and tame inflation. Enditem