(Updates with comment by trader in fourth paragraph.)
June 16 (Bloomberg) -- Kenya’s three-month borrowing costs fell for the first time since February at a central bank auction where demand was more than six times the amount on offer.
The yield on 91-day Treasury bills fell to 9.006 percent from 9.016 percent on June 9, the Central Bank of Kenya said in an e-mailed statement today. The last time the rate dropped was at a sale on Feb. 17. Since then, yields have surged more than 6 percentage points from 2.592 percent, according to the central bank’s website.
The bank, which had offered 2 billion shillings ($22.2 million) of the debt, received 13.7 billion shillings of bids and accepted 6.7 billion shillings at today’s sale.
“The central bank is determined to cap the yield below double digits as such a rise will have implications on the short end of the yield curve, potentially eroding gains on the benchmark two-year Treasury bonds,” Ann Musyoka, a fixed-income trader at Tsavo Securities Ltd., said in a phone interview.
Faster inflation and persistent fiscal deficits have pushed up borrowing costs in Kenya, East Africa’s biggest economy. Price growth accelerated for the past seven months to a 25-month high in May of 13 percent, as food and fuel prices surged.
The country’s budget gap has widened every year since at least 2005, the International Monetary Fund said in April, with the overall debt rising to 48 percent of GDP from 39 percent in 2007-2008, according to the government.
Kenya will boost spending by 15 percent to 1.15 trillion shillings in the year through June 2012, increasing expenditure on roads and energy, Finance Minister Uhuru Kenyatta said in his budget speech on June 8. The budget deficit will widen to 8.8 percent of gross domestic project excluding grants in the year through June 2012, Henry Rotich, the Treasury’s deputy director of economic affairs, said today.
“Our debt sustainability plan shows it’s still in a manageable position,” Geoffrey Mwau, economic secretary in the Finance Ministry, said by phone yesterday.
Kenya’s central bank 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, Renaissance Capital said.
The country’s monetary policy committee last month raised the benchmark interest rate by a quarter point to 6.25 percent and the cash reserve ratio by the same amount to 4.75 percent.
Six-month debt yields fell to 9.906 percent at an auction yesterday, from 9.949 percent at a previous sale. The rate is within four basis points of a nine-year high.
--Editors: Paul Richardson, Gavin Serkin.
To contact the reporters on this story: Johnstone Ole Turana in Nairobi at firstname.lastname@example.org; Sarah McGregor in Nairobi at email@example.com.
To contact the editor responsible for this story: Paul Richardson at firstname.lastname@example.org.