Kenya renews central bank overdraft borrowing
Kenya has started borrowing from the Central Bank through the overdraft after about one-year hiatus as liquidity increases in the market.
The east African nation had exclusively turned to borrowing from the domestic market through Treasury bills and bonds as it stopped expensive overdraft in October last year. Overdraft at the apex bank initially accounted for 3 percent of the domestic debt, but had remained zero percent until three weeks ago, Central Bank of Kenya showed Monday.
The government started borrowing using the tool on Aug. 11 by taking up 118 million U.S. dollars and nearly doubled the amount the following week to 215 million dollars.
Last week, the East African nation's government borrowed 200 million dollars using the facility as it sustained uptake. From 0 percent, Central Bank overdraft now accounts for 1 percent of the East African nation's 21 billion dollars domestic debt.
The overdraft is usually equated to printing of more cash, which when the borrowing increases results to inflationary pressure. Analysts noted that the government had kept it at the zero level to curb inflationary pressure, which had been on the rise, and get cheaper cash from other instruments including Treasury bill.
The overdraft interest rate is calculated at the prevailing central bank rate that currently stands at 10 percent, which is different from yields on Treasury bills and bonds that are determined by market forces.
The law allows the government to withdraw from its central bank account an amount equal to 5 percent of the last audited annual revenues. As the government renews uptake of central bank overdraft, it has also sustained the uptake of Treasury bills and bonds, with the two accounting for more than 99 percent of the total domestic debt.
Last week, Treasury bills were oversubscribed, with the overall subscription rate coming in at 153.5 percent, compared to 136 percent recorded the previous week due to increased liquidity in the money market. The overall acceptance rate stood at 93.4 percent compared to 91.1 percent the previous week, with the government accepting worth a total of 340 million dollars of the 360 million dollars received, against the 240 million dollars on offer in this auction.