In a notable development, interest rates on all three Treasury bills have experienced a decline, marking the first such occurrence in over two years.
During the most recent Treasury bill auction, the weighted average interest rates of accepted bids saw a slight downturn. Specifically, rates for the 91-day, 182-day, and 364-day papers fell to 16.7243 percent, 16.8738 percent, and 16.9898 percent, respectively, down from the previous week’s rates.
This shift is largely attributed to a change in investor sentiment following the recent issuance of a new Eurobond. This issuance has helped alleviate the sovereign risk associated with maturing notes, potentially tempering demand for higher interest rates.
Furthermore, with expectations of substantial inflows from international financial institutions before June, the government aims to reduce its reliance on domestic financing. This, coupled with plans for a second supplementary budget, has bolstered optimism for a gradual easing of domestic interest rates on government securities.
CBK Governor Kamau Thugge expressed confidence in this outlook, stating, “We expect rates to have peaked… alternative sources of funding will reduce the deficit’s reliance on Treasury bills and bonds.”
The anticipated decline in Treasury bill rates is expected to alleviate government expenditure on domestic debt service costs, contributing to fiscal consolidation efforts. The CBK’s selective acceptance of investor bids and guidance on acceptance rates for longer-dated securities further support this trajectory.
Analysts anticipate investor adjustments in response to this potential peak in interest rates. However, recalibration of other rates, such as interbank and lending rates, may take longer.
As Kenya navigates these economic shifts, the decline in Treasury bill rates signals a potential turning point, offering prospects for economic stability and sustained growth in the near term.
photo source: Google
By: Montel Kamau
Serrari Financial Analyst
8th April, 2024
