Yields on treasury bills (T-Bills) have declined sharply, falling below 12% for the first time since July 2023 after aggressive interest rate cuts by the Central Bank of Kenya (CBK).
- In August, the CBK kicked off its first easing campaign in the year with a 25-basis points rate cut, and a subsequent 75 basis points, bringing the benchmark rate to 12.00%.
- In the latest monetary policy review, the CBK slashed the benchmark interest rate again by 75 basis points to 11.25%, edging back to 2023 levels.
- Data from the CBK shows the interest rates on the shorter-dated securities – the 91-day, 182 day and 364-day papers have tumbled since the start of August just after the first rate cut.
“The Committee observed that short-term rates on government securities had declined sharply in line with the CBR,” CBK noted in the monetary policy report on Thursday.
Interest rates on the 91-day paper fell 34.6% to 10.4564% from 16.00% since the kickoff of the easing cycle by the apex bank, while the return on the 182-day paper fell 37.4% to 10.5485% from 16.85% in the same period. Similarly, the 364-day paper declined 29.3% to 11.9673% from 16.92%.
In the recent weekly auction, T-bills were oversubscribed for the 10th consecutive week, with the overall subscription rate coming in at 176.3%, albeit lower than the oversubscription rate of 211.1% recorded previously.
Treasury bills are a short-term investment, sold at a discount, that offer returns after a relatively short commitment of funds of 91 days, 182 days, and 364 days.
-Central Bank of Kenya
Demand remained skewed to the 91-day paper, receiving bids worth KSh 18.9 billion against the offered KSh 4 billion. The 182-day paper was however undersubscribed, receiving bids worth KSh 6.8 billion against the KSh 10 billion offered. The government accepted KSh 42.2 billion worth of bids out of KSh 42.3 billion bids received – an acceptance rate of 99.8%.
While T-bill rates continue downwards owing to the effects of cutting rates, the latter is yet to be transmitted to commercial banks’ lending rates. The CBK has raised concerns, urging lenders to adjust their rates – “…but that banks had not responded by lowering their rates proportionately,” CBK added in the MPC report.
“The MPC, therefore, urges the banks to take necessary steps to lower their lending rates, in order to stimulate credit to the private sector, and thereby stimulate more economic activity.”
