{"id":451446,"date":"2011-07-01T05:33:22","date_gmt":"2011-07-01T05:33:22","guid":{"rendered":"http:\/\/www.ghanamma.net\/2011\/07\/01\/cbk-tightens-lending-terms-for-local-banks\/"},"modified":"2011-07-01T05:33:22","modified_gmt":"2011-07-01T05:33:22","slug":"cbk-tightens-lending-terms-for-local-banks","status":"publish","type":"post","link":"https:\/\/www.ghanamma.com\/2011\/07\/01\/cbk-tightens-lending-terms-for-local-banks\/","title":{"rendered":"CBK Tightens Lending Terms for Local Banks"},"content":{"rendered":"
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Nairobi Star<\/a> (Nairobi)<\/p>\n

Peter Kiragu<\/p>\n

30 June 2011<\/p>\n

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The Central Bank yesterday moved to curb speculative and irregular trading of dollars by banks in a move it hopes will help cool the weakening of the Kenya shilling and tame rising inflation. CBK introduced a new interest rate for commercial banks willing to borrow from it as a lender of last resort.<\/p>\n

Banks will henceforth not be using the Central Bank Rate when borrowing from CBK through the overnight discount window. Instead, the CBK will now be setting a new operational interest rate for the overnight window on a daily basis.<\/p>\n

“Up until now, the Central Bank rate which is the minimum interest rate charged on loans to commercial banks has been the operative rate through the CBK overnight discount window…this will cease henceforth,” reads part of a circular to banks by Jackson Kitili, the CBK’s director of banking services.<\/p>\n

For a start, CBK set the interest for its overnight lending at 8 per cent yesterday meaning banks willing to borrow from it had to pay 1.25 per higher than the previous rate of 6.75 per cent which is the current CBR rate. This means it will be more expensive for banks to now borrow from CBK on the overnight window. “These measures will be implemented by the CBK with immediate effect,” the circular reads.<\/p>\n

Further, the CBK has banned commercial banks from using money borrowed from the overnight window for trade on the interbank market or for foreign exchange trading.<\/p>\n

Both measures are expected to curb arbitrage and speculation in the forex market, a situation CBK has blamed for the weakening Kenya shilling. Just last week, CBK pointed an accusing finger to five commercial banks for the volatility in the exchange rate.<\/p>\n

Arbitrage involves taking advantage of a price difference between two or more markets by getting matching deals that capitalize on the imbalance and getting the profit from the different market prices. An audit by the bank showed in just one week, between June 9 and June 16, the five banks exported over Sh23.4 billion ($260 million).<\/p>\n

Yesterday a member of CBK’s monetary policy committee Sheila M’Mbijjewe said the bank had noted an increase of borrowing on the overnight window raising possibility of arbitrage trading by banks. “This (overnight window) is for banks with short term liquidity shortfalls and should not be used many times but there is too much use of that window,” M’Mbijjewe told the Star on phone. M’Mbijjewe added that the new policy should not translate into higher lending rates on the interests on loans.<\/p>\n

CBK said the new rules will help to curtail second round effects arising from fuel and maize prices and exchange rate volatility that have been fueling inflationary expectations.<\/p>\n

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\nCBK Tightens Lending Terms for Local Banks<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Nairobi Star (Nairobi) Peter Kiragu 30 June 2011 The Central Bank yesterday moved to curb speculative and irregular trading of dollars by banks in a move it hopes will help cool the weakening of the Kenya shilling and tame rising inflation. 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