Bloomberg News

Kenya’s 3-Month Borrowing Costs Fall for Third Auction

June 30, 2011

(Updates with analyst’s comment in seventh paragraph.)

June 30 (Bloomberg) -- Kenya’s three-month borrowing costs fell for the third successive weekly auction as the bank received fewer bids for the debt than the amount it offered.

The yield on 91-day Treasury bills was 8.988 percent at today’s auction, the Nairobi-based Central Bank of Kenya said in an e-mailed statement today. That compares with 8.99 percent for the June 23 sale.

The central bank of East Africa’s biggest economy cut a sale of bonds to 47 percent of the amount bid last week to curb an increase in yields as the country grapples with a fourfold increase in inflation since October. Yields on three-month bills surged to a more than nine-year high on June 10 as the shilling depreciated to the weakest in 17 years, raising the cost of imports such as fuel and food.

“The central bank is determined to cap the yields on the short-term securities by accepting bids within its desired levels as it seeks to bring stability in the money market,” Fred Moturi, a fixed-income dealer at Nairobi-based Sterling Investment Bank Ltd., said by phone today before the auction.

The bank, which had offered 2 billion shillings ($22.33 million) of 91-day bills, received 1.48 billion shillings of bids, accepting 1.44 billion shillings.

Inflation accelerated to 14.5 percent in June, the highest in more than two years, as food and fuel prices increased, the Kenya National Bureau of Statistics said yesterday.

Overnight Rate

“The results of declining yields and under subscription is an indication of the tightening effect that the central bank is pursuing in the market,” Fred Mweni managing director at Nairobi-based Tsavo Securities Ltd., said in an interview .

The central bank increased the overnight lending rate to 8 percent to rein in price growth and curb speculation in the shilling, it said yesterday. It previously used the benchmark central bank rate, which is at 6.25 percent, to price overnight loans. The bank, which said it will review the bank-lending rate daily, left it unchanged today, it said on its website.

Kenya will boost spending by 15 percent to 1.15 trillion shillings in the year through June 2012, increasing spending on roads and energy, Finance Minister Uhuru Kenyatta said in his budget speech on June 8. The deficit will widen to 7.4 percent of gross domestic product. Domestic borrowing is targeted at 119.5 billion shillings in the next financial year, down from 125 billion shillings this year.

--Editors: Ana Monteiro, Linda Shen. Antony Sguazzin

To contact the reporter on this story: Johnstone Ole Turana in Nairobi at jturana@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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