Kenya’s treasury seeks cheaper loans, rejects ‘expensive’ bids

Kenya’s National Treasury’s plan to secure cheaper loans from commercial banks and pension funds has started playing out in the local money markets with central bank rejecting bids it considers “expensive.”

The EastAfrican has learnt that investors are demanding a compensation for the value of their money eroded by inflation, which is hovering at a record high of 9.5 percent as a result of high fuel and food prices.

Central Bank of Kenya (CBK), the government’s fiscal agent, is under pressure to borrow from the domestic market at a rate that is not more than 10 percent as President William Ruto’s administration seeks to bring the mounting debt burden under control.

 However, the performance of the treasury bond auction in the past three months shows that the government has been borrowing at an average rate of 13.82 percent, according to the latest CBK data.

According to analysts at Cytonn Investments Ltd, the government continued to reject expensive bids, in the month of November accepting a total of Ksh129.3 billion ($1.05 billion) of the Ksh161 billion ($1.31 billion) worth of bids received, translating to an acceptance rate of 80.3 percent.

“However, yield on government securities increased during the month (November) compared with the same period last year (2021) as a result of the elevated inflationary pressures leading to investors demanding higher premium,” according to the analysts through the month market report for November dated December 4 2022.

“Despite the slight decline in inflation in the month of November to 9.5 percent from 9.6 percent in October, we expect the inflationary pressures to remain elevated in the short term, mainly on the back of high fuel prices.”

Source: The East African