Business Daily (Nairobi)
David Mugwe
12 January 2012
This week’s six-month Treasury bills auction was over-subscribed for the first time in more than two months as liquidity improved in the banking system, but Treasury rejected more than half of the bids as it sought to slow down the government’s cost of borrowing.
According to results released by the Central Bank (CBK), bids worth Sh3.3 billion were received against a target of Sh3 billion, meaning the issue was oversubscribed by more than two times.
The banking sector regulator accepted Sh1.56 billion or 48 per cent of the bids while the yields went up by 0.066 percentage points to 20.78 per cent, much slower than the previous week when it rose by 0.47 points.
Cap rates
“The oversubscription shows that there is liquidity in the market since it has been a while since the 182-day paper was over-subscribed,” said Evans Mugi, a research and investment analyst with Genghis Capital.
He said the low uptake by CBK showed the State was trying to cap interest rates at the current levels.
The 182-day Treasury bill auction has been receiving low subscription rates since October when the auction was oversubscribed by more than two times.
The three-month Treasury bill auction was oversubscribed by more than three times, managing to attract bids worth Sh8.62 billion against a targeted Sh4 billion.
The yields rose to 20.79 per cent and Sh5.96 billion worth of bids were accepted meaning that 31 per cent were rejected.
On Wednesday the banking regulator retained its benchmark lending rate at 18 per cent signaling that it may shift its monetary tightening stance going forward if the rate of inflation which began declining in December continues its downward trend and the shilling remains stable.
CBK said that retaining the Central Bank Rate at its current level would provide time for the actions it has been taking to have their full impact together with the liquidity management instruments in place.
Alex Muiruri a fixed income sales trader with African Alliance Investment Bank said that as of last week the banking sector had about Sh8.31 billion in excess in commercial bank clearing accounts reflecting improved liquidity positions.
“It is obvious that the Central Bank is concerned with the rapid rise in short term yields as is looking to stem market expectation of further hikes. This is confirmed by their decision to keep the policy rate fixed,” he said, adding that that this may also mean that bond yields may have reached their peak due to declining inflation.
Last month the inflation rate dropped marginally for the first time in more than a year to 18.93 per cent from 19.72 per cent in November and further drops are expected going forward due to expected reduced electricity and fuel costs this month.
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