Relief for borrowers as interest rates drop

Good news for borrowers as interest rates are set to reduce next week following a dramatic fall in interest rates on government treasury bills.

The reduction has seen the yield on the 91-days treasury bill plummet to 13.7 percent from last week’s rate of 19.4 percent.

Joshua Oigara, the Chairman of the Kenya Bankers Association and Group Chief Executive Officer of Kenya Commercial Bank (KCB), said all commercial banks will lower their lending rates in line with this latest reduction in interest rates from Monday next week.

Interest rates had soared above 25 percent, and this was caused by a dramatic rise in yields on government treasury bills, which are a key determinant of lending rates.

As Equity Group Managing Director Dr James Mwangi explains, this development compelled commercial banks to lend at even higher interest rates, “We cannot lend you at 16 percent, you will buy t-bills at 22 percent, let’s not fool ourselves.”

The yield on the 91 day Treasury bill rate has so far seen the biggest decline of nearly six percentage points, plummeting to 13.76 percent this week from 19.47 percent the previous week.

The 182-day Treasury bill rates have also dropped from 21 percent last week to 16.49 percent this week, while rates on 364-day treasury bills have dropped from 21 percent last week to 17.1 percent this week.

According to the Kenya Bankers Association Chairman this latest development has set the stage for a return to lower lending rates.

“The fall in t-bill rates especially the 91-day treasury bill to 13 % will drive lower interest rates and lending rates on loans… there is no crisis in our economy. The temporary hike in October has been well managed by the CBK and the national treasury,” said Oigara.

The decline in t-bill rates is also a sign of increased liquidity in the money markets, which is expected to gradually spur interest rates downwards.

To bring down the cost of money, the Central Bank of Kenya has been injecting fresh liquidity into the money markets, with its latest intervention being its injection of 6 billion shillings on Friday.

And with treasury bill rates now on the decline, there is now a glimmer of hope for a respite on the cost of borrowing from commercial banks.