(Updates with shilling in the seventh paragraph.)
June 16 (Bloomberg) -- Kenya’s six-month borrowing costs retreated for the first time December at a central-bank sale where demand was almost four times the amount on offer. The yield is within four basis points of a nine-year high.
The yield on the 182-day Treasury bills fell to 9.906 percent at yesterday’s auction, the Nairobi-based Central Bank of Kenya said in an e-mailed statement. That’s the first time costs have dropped since a sale on Dec. 10, and compares with a yield of 9.949 percent at the previous sale, the highest since May 2002. The bank, which had offered 2.5 billion shillings ($28 million) of the debt, accepted 2.2 billion shillings of bids, having received 9.97 billion shillings of demand.
Inflation in East Africa’s biggest economy jumped to a 25- month high of 13 percent in May. Price growth is expected to advance further this year as dry weather curbs agricultural output, central bank Governor Njuguna Ndung’u said on June 6.
“The central bank’s decision to reject a substantial amount of the bids it received is a clear pointer to its desire to maintain the yield rate below 10 percent,” Ronald Olembo, a fixed-income trader at Nairobi-based CfC Stanbic Bank Ltd., said in a phone interview.
Three-month debt yields surged to a more-than nine-year high of 9.016 percent at a June 10 sale where demand exceeded the amount offered by almost nine-fold.
One-year yields advanced to the highest in at least five years last week. Kenya’s government plans to borrow 119 billion shillings ($1.3 billion) on the domestic market in the fiscal year through June 2012, Finance Minister Uhuru Kenyatta said in his annual budget speech on June 8.
Kenya’s currency, the world’s third-worst performer so far this year after recording a decline of 11 percent, was trading at a 17-year low of 90.43 against the dollar at 1:15 p.m. in Nairobi, the capital.
Kenya’s monetary policy committee raised the benchmark interest rate by a quarter percentage point to 6.25 percent and the cash reserve ratio by a quarter to 4.75 percent, the central bank said on May 31.
The MPC may raise its benchmark rate as much as 1.25 percentage points by the end of the year to curb inflation and support the shilling, which hit the weakest in 17 years on June 13, Yvonne Mhango, a Johannesburg-based economist with Renaissance Capital, wrote in an e-mailed note to clients yesterday.
The central bank typically meets every two months to review monetary policy. Its next meeting is scheduled for July.
“The rhetoric of the Central Bank of Kenya has become more aggressive in the face of accelerating inflation and a weakening shilling,” Mhango said. “This follows the reluctant tightening of monetary policy in the first half of 2011.
The central bank has sold 23.8 billion shillings of repurchase agreements since May 11 as it seeks to curb supply of the local currency in the market.
--With assistance from Chris Kay in London and Sarah McGregor in Nairobi. Editors: Ana Monteiro, Linda Shen
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