T-bill fall signals hope for cheaper loans

Hard-pressed borrowers now have a glimmer of hope following the fall in key Treasury bill rates in the last two weeks, coinciding with the Central Bank of Kenya (CBK) head’s hint of a gradual fall.

The yields came down by more than four percentage points to 16.492 and 17.13 per cent respectively at the CBK’s latest auction of the 182-and 364-day Treasury bills.

For the 182-day paper, the yield was down 4.536 percentage points while the 364-day paper slid by 4.082 percentage points.

Last week, the 91-day T-bill was sold at 19.5 per cent and could go down further in the auction results expected to be announced Friday.

Thursday, the International Monetary Fund (IMF) resident representative Armando Morales said that interest rates were trending towards stability — showing that the high rates were temporary.

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“The high interest rates we have seen is a temporary phenomenon. It is not likely to go on for long. Already, we have seen the rates on government securities going down. We are heading for stability in rates,” said Mr Morales.

Lending rates have risen in the past few months following the rise in rates on government securities. High-yield ‘risk-free’ treasuries raise lending rates as banks prefer them to lending customers.

The 91-day T-bill peaked at 22.5 per cent while the rate for the 182- and 364-day paper reached their highest level this year at 22.3 and 22.4 per cent respectively, towards the end of last month. Commercial banks’ lending rates have risen as high as 27 per cent.

Inflationary pressure

The IMF boss was speaking during a forum called in Nairobi to launch a report on sub-Saharan African economies, which are forecast to grow by 3.8 per cent this year down from five per cent last year.

The report projects 6.5 per cent GDP growth for Kenya, down from the April forecast of 6.9 per cent.

Mr Morales noted that high interest rates in Kenya were necessary to curb the depreciation of the exchange rate, since this would have translated into inflationary pressure.

Charles Kamanda, the head of asset and liability management at KCB said the fast pace at which interest rates were falling was risky for the shilling and inflation because it could take the country back to the crisis it has been experiencing in the past few months.

Mr Kamanda said the major cause of the steep increase in interest rates was the Central Bank of Kenya’s (CBK) failure to allow borrowing by banks from its discount window for several months.

“The central bank stopped borrowing on the discount window and this contributed to sending interest rates very high. Interbank rates went as high as 25 per cent. At the pace the T-bill rates are falling we will be in single digits in a matter of weeks.

‘‘This might take us back where we came from,” Mr Kamanda told the forum. The fall in interest rates comes only two weeks after CBK governor Patrick Njoroge said he would bring down the rates gradually to give the economy a soft landing.

READ: Treasury borrowing rates finally ease after trending up for weeks

“We want to give the economy a soft landing. We will engineer all the interest rates down gradually. We don’t want a situation where you have been accelerating the car and then you apply brakes suddenly,” said Dr Njoroge.