Bloomberg News

Kenya 3-Month Yields Rise for 1st Sale in 5 on Tighter Rules

July 14, 2011

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

July 14 (Bloomberg) -- Kenya’s three-month borrowing costs rose for the first time in five auctions as the central bank tightened overnight borrowing rules to curb money supply and inflation in East Africa’s biggest economy.

The yield on the 91-day Treasury bills climbed to 8.999 percent at today’s sale from 8.954 percent on July 7, the Nairobi-based Central Bank of Kenya said in an e-mailed statement. Yields on three-month bills surged to 9.016 percent on June 10, the highest in more than nine years. The bank issued 1.2 billion shillings ($13 million) of debt after investors bid for 2.2 billion shillings of the 2 billion shillings offered.

Banks planning to lend to other operators in the interbank market can no longer access funds through the discount window on the same day, the central bank said on July 12. It also reversed an increase in the rate it charges lenders for overnight loans back to 6.25 percent after raising it just two weeks ago.

“The yields have gone up due to tight liquidity in the market and lenders are avoiding locking in their funds while they may have limited access to other funding sources unless they discount the securities they are holding,” Fred Mweni, a fixed-income dealer at Nairobi-based Tsavo Securities Ltd., said in an interview.

The bank had raised the overnight rate to 8 percent from 6.25 percent on June 29 to rein in inflationary expectations and curb speculative trading in the shilling, which reached the weakest level in 17 years on June 22.

Lenders were using the 8 percent rate as a base for interbank lending, resulting in “distortions in the money market,” the central bank said. Weekly borrowing is now capped to a maximum of banks’ statutory cash reserves, or the money kept at the central bank, it added.

--Editors: Ana Monteiro, John Kohut

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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