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State cuts overdraft as Treasury bill rates fall

Treasury has cut its overdraft at Central Bank of Kenya to a four-month low. Treasury has been paying down the overdraft progressively since hitting a peak of Sh63 billion at the beginning of January. Borrowing through the overdraft is by law restricted to a maximum of five per cent of the most recently audited revenues

The Treasury has cut its overdraft at Central Bank of Kenya (CBK) to a four-month low at Sh15 billion on the back of increased borrowing from cheaper Treasury bills. Latest CBK data on domestic debt dated February 2 shows the Treasury has been paying down the overdraft progressively since hitting a peak of Sh63 billion at the beginning of January. Given that the Treasury pays an interest rate equivalent to the prevailing Central Bank Rate (CBR), which currently stands at nine per cent, the facility is now more expensive than short term T-bills at prevailing rates.In last week’s auction, the 91-day Treasury bill came in at 6.89 percent, while the 182-day has a rate of 8.32 percent. Only the 364-day paper is offering more than the overdraft at 9.48 percent. The government normally turns to the CBK for the short-term facility when it faces cash shortage, easing urgent payment requirements such as salaries and other recurrent expenditure like debt repayments.

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“Domestic debt in Kenya stood at Sh2.62 trillion during the week ended February 22, a decrease of 0.45 percent or Sh3.24 billion week-on-week. This is largely attributed to a reduction in the CBK overdraft facility by 33.6 percent during the week,” said Standard Investment Bank in a fixed income report. Borrowing through the overdraft is by law restricted to a maximum of five per cent of the most recently audited revenues and must be repaid within 12 months of the date of borrowing. The performance of Treasury securities auctions in the past two months has been overwhelmingly positive for the government, raising more that the targeted amounts at falling rates.

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