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Kenya T-Bill Rates May Stay Near Record Low to Aid Growth, Pinebridge Says
Kenya’s central bank may seek to keep Treasury bill rates near the lowest in at least four years until there’s more evidence the nation reached its growth target of 4 percent, Pinebridge Investments East Africa Ltd. said.
T-bill cut-off rates have declined as the central bank has reduced its lending rate six times since 2009 to help spur economic growth and boost the expansion of credit to businesses and households. The benchmark interest rate of 6 percent is now at its lowest since it was introduced in June 2006.
The cut-off rate on 91-day bills offered by Kenya was 2.202 percent at the last auction, the central bank said on Aug. 26. That’s near the 1.699 percent reached in July, the lowest since Bloomberg began regular records in March 2006 and compares with 7.501 percent for the same securities in August last year, it said. The 182-day securities fell to 2.199 percent, the central bank said on Sept. 2, from 8.199 percent a year earlier.
“Rates being low will provide an extra support to the economy,” David Achungo, investment manager of Nairobi-based Pinebridge, said by phone yesterday. “With a growth rate above 4 percent the government may actually feel a bit more comfortable about the prospects for the economy. But they’d need to see that for two or three more consecutive quarters before they’d tinker with the rates.”
Economic growth accelerated to an annual 4.4 percent in the first quarter after rainfall ended a two-year drought and provided a boost to agriculture, the country’s National Bureau of Statistics said on July 1. Between January and March, the farming industry grew an annual 4.6 percent, the first expansion since the third quarter of 2007, it said.
Growth Target
East Africa’s largest economy is targeting growth of between 4 percent and 5 percent this year. The expansion goal compares with 2.6 percent growth in 2009 and 1.7 percent the year earlier, from 7.1 percent in 2007, following post-election violence that killed 1,500 people and dry weather.
Kenya’s inflation rate fell to 3.2 percent in August, from 3.6 percent a month earlier, as telecommunications costs retreated, the statistics agency said Aug. 31. The inflation target is 5 percent.
The Bank of Kenya’s monetary policy committee noted that short-term interest rates “had continued to decline in response to monetary policy signals,” suggesting “strong confidence in the long-term stability of the economy,” it said in a statement following its July 28 meeting.
Measures the central bank could take to increase T-bill rates include increasing the benchmark interest rate and raising the cash reserve ratio, which is the percentage of deposits that banks store at the central bank, said Pinebridge’s Achungo.
To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net.
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