Soaring interest rates on Kenya's T-bills cool off after 23 pct peak

After maintaining a steady climb to reach a three-year high of 23 percent, interest rates on Kenya's T-bills have begun to drop, signalling better times for borrowers in the East African nation.

The yields have been on a rise since July after the Central Bank of Kenya (CBK) raised its benchmark rate to 11.5 percent in bid to stop the shilling from weakening against major world currencies.

The high Treasury bills' rates have seen the apex bank mop-up excess liquidity from the market as investors buy the securities to cash in on the increased yields.

The bank has mopped-up billions of U.S. dollars from the market, which have bolstered its foreign exchange reserves that it uses to support the shilling when it is under pressure from international currencies.

The shilling is currently exchanging against the U.S. dollar at a high of 101 from 106 early this month.

The positive developments in the money market have this week seen yields on the Treasury bills fall for the first time since August.

Interest rates on the 91-day, 182-day and 364-day bills went down in this week's auction by up to 3 percent.

Yields on the 91-day bill dropped by 3 percent from 22.5 percent to 19.5 percent. The 182-day bill, on the other hand, shed off 1.3 percentage points to fall from 22.3 percent to 21 percent.

Similarly, the 364-day bill dropped 1.2 percentage points to stand at 21.2 percent from 22.4 percent.

The decline in the rates, according to analysts, means that the Central Bank has achieved its objective of stabilising the shilling, thus, the yields would fall further in the coming weeks.

However, despite the drop in earnings for the three papers, investors were not dissuaded from buying them as appetite soared to a new high.

The Central Bank floated 91-day, 182-day and 364-day bills worth 40 million dollars each.

"The total number of bids received was 686 amounting to over 327 million dollars representing a subscription of 826 percent. The total number of bids accepted was 68.4 million dollars," said CBK's Acting Director of Financial Markets John Birech.

For the 182 and 364 days bills respectively, the bank received bids amounting to 190 million dollars representing a 480 percent subscription and 405 million dollars representing a 1,023 percent subscription.

It is the first time in many years that a government paper has recorded a subscription of over 1,000 percent. The CBK accepted bids amounting to 55.4 million dollars for the 182-day bills and 70 million dollars for the 364-day bills.

In the past weeks, the regulator would have accepted nearly all the bids, if not all from the papers, but it is certain that the bank is not keen on taking in more cash from investors.

"The shilling has strengthened against the dollar and other world major currencies. It is likely to cross below the 100 mark. The CBK in the next coming weeks would, thus, not take much from investors as it concentrates on bringing down the interest rates. The high rates have achieved their objectives," noted Henry Wandera, an economics lecturer in Nairobi.

With the high rates on government papers, commercial banks interest rates in the East African nation had risen to between 19 percent and 30 percent, from a low of 15 percent over two months ago, squeezing borrowers. Endit