For Online E-newspaper
The East African : Nov 7th 2015
MONEY AND EQUITY MARKETS NOVEMBER 7-13,2015 CBK releases $153m into the market to stabilise interest rates The indust≥y ≥egulato≥ bought secu≥ities f≥om comme≥cial banks that it will sell back By JAMES ANYANZWa The EastAfrican K enya’s Central Bank has injected Ksh16 billion ($153.98 million) into the economy in a bid to lower the cost of borrowing that has left the banking industry facing mass defaults. The money was injected through reverse repurchase agreements (repos) on November 5, as the industry regulator bought securities from commercial banks with an undertaking to sell them back. Market analysts said the move is meant to cautiously improve cash flow in the banking industry in a bid to influence interest rates without hurting the exchange rate and inflation. “CBK has actually been buy- ing instruments from banks in order to inject liquidity. What they are trying to do is a clear signal that they are trying to influence the interest rates to a reasonable level without destabilising the forex market and reviving inflationary pressures,” said Francis Mwangi, head of research at Standard Investment Bank. “Ideally, CBK is supposed to be in the repo market when the market is dry with no liquidity, but they could be doing this now because of the small banks that are facing liquidity challenges,” said Eric Munywoki, research analyst at Old Mutual Securities Ltd. “Small banks may be having challenges to borrow from the interbank market because of what happened with Imperial Bank and because some banks don’t have confidence in them.” Kenya’s central bank recent- ly placed Imperial Bank under receivership over “unsound business conditions.” Interest rates in Kenya had risen to worrying levels leaving commercial banks counting paper losses on their bond holdings, and borrowers struggling to service their loans. The equity market has seen investors dump shares in fa- Customers being served at the KCB Moi Avenue branch in Nairobi. Pic: File vour of the Treasury bond market. The government’s increased CBK is trying to influence the interest rates to a reasonable level without destabilising the forex market.” Francis Mwangi, head of research at Standard Investment Bank. borrowing from the domestic market through issuance of Treasury-bills and bonds pushed short-term interests beyond 22 per cent, encouraged lenders to put money in government securities while starving each other of overnight cash in the interbank market. Last week, interbank over- night rates declined slightly to 9.28 per cent from 10.19 per cent, as CBK promised to guide the market into a gradual interest rate decline. The interest rates on govern- ment securities also fell. CBK offered 91 day T-Bills for a total of Ksh4 billion ($38.49 million) but received Ksh44.6 billion ($429.23 million) worth of bids of which Ksh7 billion ($67.36 million) was accepted at an average of 13.73 per cent, down from 19.47 per cent in the previous auction. It is, however, feared that the shilling exchange rate will come under pressure as yields on government T-bills continue to decline. According to the global rat- ing agency Moody’s, Kenya and Uganda have been run- INFLUENCING RATES Interest rates in Kenya had risen to worrying levels leaving commercial banks counting paper losses on their bond holdings, and borrowers struggling to service their loans. The equity market has seen investors dump shares in favour of the Treasury bond market. The government’s increased borrowing from the domestic market through issuance of Treasury-bills and bonds pushed ning large current account deficits that are not fully financed by a combination of aid and FDI flows and large fiscal deficits that are partly reliant on external financing. Capital outflows An increase in capital out- flows is expected to put pressure on foreign exchange reserves and further weaken their currencies. According to Mr Munywoki there has been an increased amount of foreign inflows into government securities mainly because of high returns on short-term interests beyond 22 per cent, encouraging lenders to put money in government securities while starving each other of overnight cash in the interbank market. Last week, interbank overnight rates declined slightly to 9.28 per cent from 10.19 per cent, as CBK promised to guide the market into a gradual interest rate decline going forward. 45 Uganda to bo≥≥ow less f≥om local ma≥kets By MARTIN LUTHER OKETCH Special Correspondent UGANDA HAS revised downwards the amount of money it will borrow from the domestic market this fiscal year, from Ush1.4 trillion ($404 million) to Ush800 billion ($231 million), because of high interest rates and the tight monetary policy it is executing to guard against a rise in inflation and the shilling’s depreciation against the US dollar. In an interview with The East- African on November 4, the Permanent Secretary/Secretary to the Treasury, Keith Muhakanizi said this will lead to cuts in government expenditure in non-priority areas. “We have had to suspend or re- duce on issuance of the government securities; I n t e r - est rates have continued to rise and t h o s e who are investing in government securities have kept on demanding higher rates, which is too expensive for us to pay,” he said. In the current budget, the list- $231m Amount of money Kampala will borrow from the domestic market, down from the $404 million budgeted for ed priority areas are agriculture, tourism, minerals, oil and gas, infrastructure development and human capital development, aligned with the National Development Plan II. This is a departure from last year’s approach when the government issued Treasury bills and bonds beyond what was budgeted for to finance the fiscal deficit, in spite of high interest rates. In this financial year, the over- Treasury bills and bonds. “There is a lot of capital flows into the country. We have also seen some redemption on Treasury bill and bonds in the market, leading to increased liquidity,” he said. According to Johnson Nderi, a corporate finance manager at ABC Capital Ltd, liquidity is improving in the banking system buoyed by CBK’s actions and foreign inflows into the country which are likely to bring down interest rates to as low as 11 per cent to 12 per cent. “We expect rates to go down in the short term,” said Mr Nderi. all fiscal deficit is estimated at 8.8 per cent of GDP compared with 4.5 per cent the previous year. Treasury has also tightened the release of funds to ministries, agencies and departments, although the Secretary to the Treasury dismissed as wrong recent reports that the government is broke. The idea that government cuts public spending was discussed between Uganda government officials and the International Monetary Fund mission team that visited the country recently to conduct the fifth review of Uganda’s economic programme .
Oct 31st 2015
Nov 14th 2015