The average interbank rate has risen for the third consecutive week, a move likely to further push up the overall cost of credit for borrowers.
The weekly bulletin by the Central Bank of Kenya shows the interbank rate was at 7.69 per cent for the week ending March 31, having gone up 18 per cent in the past four weeks.
The high interbank rate is likely to further fuel the rise in the cost of loans in the wake of an increase in base lending rate by the apex bank.
On Wednesday last week, CBK raised the benchmark lending rate from 8.75 per cent to 9.5 per cent to contain the economy's soaring inflation.
The high interbank rate saw the number of deals amongst lenders drop by 10 on Friday.
“In the week under review, the average number of interbank deals decreased to 33 from 43 in the previous week, while the average value traded decreased to Sh20.6 billion from Sh28.1 billion,” CBK notes in a statement.
While both high interbank rates and base lending are likely to limit the money supply in the market, experts see good in it.
According to money markets expert Dan Aningu, the high supply of local currency in the market on low dollar supply has been fueling inflation hence the two measures are likely to stabilise the market.
'High local currency supply and low product supply mean high inflation. Limitation of supply as a result of high interbank rate and CBR is good for containing inflationary pressures,'' Aningu said.
Apex banks globally use the interest rates as either a gas pedal or a brake on the economy when needed.
They set the short-term borrowing rate for commercial banks, and the banks pass it along to consumers and businesses.
With inflation running high, they can raise interest rates and use that to pump the brakes on the economy in an effort to get inflation under control.
The shilling has been depreciating in value since 2020, losing close to 34 per cent against the US dollar, falling from 99 mark to 132.
This means that importers have to pay an extra 34 per cent to bring in commodities, passing the high import bill to end consumers.
Data by the Kenya National Bureau of Statistics (KNBS) places the inflation rate for the month of March at 9.2 per cent on the back of increasing food prices which have continued to put households under pressure and raise the cost of living.
This is unchanged from the previous month, after rising from 9.0 in December last year and 9.1 in January.
This depicts a clear picture of un-easing inflationary pressures on consumers with a further depreciation of the shilling adding more strain.
The mounting pressure on the dwindling shilling is yet to cease three months down the line this year, defying earlier predictions by various economic actors of the Shilling strengthening against the dollar in the first quarter of this year.
On a year-to-date, it has shed about 15 per cent of its value, now rallying towards the 135 mark in less than a week if the same persists.
The weakening shilling has also been piling pressure on the country’s forex reserves which have further dipped to lows of 3.59 of imports cover for the week that ended March 31 down from 3.66 the previous week.
Latest data by the Central Bank of Kenya shows the usable reserves further fell to $6.4 million (Sh846.3 billion) in the week that ended March 30.
This is below the statutory threshold of at least four months of import cover.
However, the regulator maintained a brave face noting that the usable foreign exchange reserves remained adequate.