CBK rapid bond sales to limit upward rates pressure amid higher borrowing

Key Takeaways

• The Central Bank of Kenya (CBK) is aggressively fast-tracking domestic bond sales to mitigate upward pressure on interest rates, despite an anticipated increase in the government's full-year borrowing target.
• The upcoming supplementary budget is expected to raise the net domestic borrowing limit to Sh885.9 billion from Sh613.5 billion, driven by a wider budget deficit (Sh1.14 trillion) due to revenue shortfalls and increased expenditure.
• By the end of January, the government had already achieved 114 percent of its prorated gross domestic borrowing target, effectively pre-covering part of the expanded funding needs.
• CBK's policy rate cuts (4.25 percentage points to 8.75 percent since August 2024) and robust investor demand in liquid money markets have led to a significant drop in yields on government securities, with T-bills falling from highs of 16.7-16.9 percent to 7.6-8.97 percent.