Cash deposited by commercial banks at the Central Bank of Kenya (CBK) vaults last week saw a shortfall of Sh15 billion relative to the monthly average requirement of 5.25 per cent of total deposits.
The CBK reported in its weekly update that the cash reserve ratio (CRR) shortfall came against a background of tight market liquidity caused by banks’ remittance of taxes that falls on 20th of every month.
Genghis reported that the CBK had to inject Sh10 billion into the market to increase liquidity.
“Liquidity conditions in the money market remained tight during the week ending November 21, partly due to tax remittances by banks. Commercial bank reserves remained above the three per cent daily cash reserves requirement but recorded a shortfall of Sh15 billion with regard to the 5.25 percent CRR monthly averaging requirement,” said the CBK. Because of the market tightness, the average interbank rate rose to 4.2 per cent by last Wednesday and 5.47 per cent by last Friday even as the total amount transacted fell to Sh22.1 billion from Sh25.1 billion in the previous week.
“As a result, the average interbank rate rose to 4.2 per cent (5.47 per cent by last Friday) from 2.9 per cent in the previous week. The average number of interbank deals remained stable, while the average interbank volumes traded declined to Sh22.1 billion compared to Sh25.1 billion in the previous week,” said the monetary authority.
Analysts said that the money market lending was skewed, an indication that the total amount borrowed was lower than in the previous week yet the rate rose meaning that it was the small banks that were borrowing at high rates.
Genghis Capital said the CBK had to intervene with injection of Sh10 billion in the course of the week.
“The average interbank rate … in the week due to tightened liquidity in the market. The regulator intervened in the earlier part of the week to mop-up liquidity totalling Sh10 billion,” said Genghis Capital.