Kenya's short-term borrowing costs are rising again after a prolonged decline that had taken Treasury bill rates to multi-year lows, marking a potential turning point in the country's interest rate cycle.
- •The 91-day T-bill rate has risen for five consecutive auctions since late April, climbing from a cycle floor of 7.4000% to 8.3176% as of the May 18 auction, a gain of 93.8 basis points in under four weeks.
- •It is the longest consecutive rising streak for the benchmark short-term rate since a nine-auction run between April and June 2024, at the peak of a tightening cycle that had pushed the same rate to a high of 16.7306%.
- •The reversal ends a roughly two-year easing phase that was among the most dramatic in Kenya's history.
From a peak of 16.7306% on the 91-day in March 2024, rates fell steadily to a floor of 7.4000% by early April 2026 as the Central Bank of Kenya cut its benchmark rate ten consecutive times, reducing the Central Bank Rate by 425 basis points from 13.0% to 8.75%.
The 182-day and 364-day tenors traced similar trajectories, falling from highs of 16.9137% and 16.9899% respectively before bottoming out in the first quarter of 2026.
The catalyst for the reversal is a confluence of pressures that have shifted the calculus for T-bill investors simultaneously.
The CBK's decision to hold its benchmark rate at 8.75% at the April 8 Monetary Policy Committee meeting removed the single most powerful anchor suppressing short-end yields. Throughout the easing cycle, bidders had accepted below-market rates in anticipation of further cuts. With the MPC pausing and signalling caution over global energy price risks, that forward pricing logic has unwound.
Inflation has added urgency to the repricing with Kenya's headline inflation rate jumping to 5.6% in April 2026, its highest reading since March 2024, crossing the CBK's 5% target midpoint for the first time since the easing cycle began. The surge was driven by petroleum costs tied to the Middle East conflict, which pushed transportation inflation to 10% from 3.8% in March. Investors holding 91-day paper at sub-inflation yields face negative real returns, a position the market is now correcting.
The National Treasury has targeted a record KSh 1.1 trillion in domestic borrowing for the 2026/27 financial year, with 78% of total planned borrowing skewed toward the local market. That supply pipeline, the largest in Kenya's history, is already being priced into auction dynamics. At the same time, talks with the International Monetary Fund over a successor financing programme have stalled, removing a credibility anchor that had supported investor confidence in Kenya's fiscal trajectory through much of 2025.
Kenya's T-bill stock has grown to over KSh 1.1 trillion, built up rapidly during the easing cycle when Treasury leaned on short-term paper to manage cash flow. That pile rolls over every 91 to 364 days, requiring the government to return to the market continuously. As the stack has grown, the market's clearing price has risen with it.
Whether the current streak extends into a new tightening cycle or stabilises at current levels will depend on the trajectory of inflation, the MPC's next move at its June meeting, and the pace at which Treasury's FY2026/27 borrowing programme activates.
