|
|
Kenya: CBK Introduces New Tool to Mop Up Excess Cash
 |
|
|||||||||
|
||||||||||
Business Daily (Nairobi)
11 May 2008
Posted to the web 12 May 2008
Washington Gikunju
Nairobi
The Central Bank of Kenya (CBK) has introduced a monetary policy tool to manage market liquidity by buying excess cash from banks through a competitive auction bidding system.
The product to be known as a "term auction deposit" is a new open market operation (OMO) tool that is hoped will complement repurchase agreements (Repos), which are currently the most commonly used OMO tool.
Open market operations are the means of by which central banks control their national money supply by buying and selling government securities or other financial instruments.
Through OMOs, central banks target to control interest rates and currency exchange rates by crafting and sticking to specific monetary policies. CBK has over the years relied on Repos to implement its monetary policy, but has lately turned to selling dollars to banks through the inter bank foreign exchange market as a way of mopping up excess shillings from the economy.
Repos are generally contracts through which central bank sells securities such as Treasury Bills, and agrees to buy them back at a specified time and price. They are also called repurchase agreements or buybacks.
According to a circular written by CBK to chief executives of all commercial banks, the "term auction deposit"' was supposed to have been tested for two days, on April 28 and 29 after which it was to be rolled out on April 30.
Most bankers interviewed by Business Daily however said that the product is still in its testing stages and is yet to be rolled out, almost two weeks after the intended launch date.
"The term auction deposit is a new product that is still in the testing stage," said NIC Bank head of Treasury, Mr Sankul Mandavia. Banks with excess cash in their vaults will be expected to bid for up to Sh20 million and earn interest on the term deposits, which they are expected to hold to maturity.
The maturity period for the deposits shall be between three to 90 days.
According to the circular signed by CBK assistant director for banking services , J. K Birech, the deposits shall qualify for liquidity ratio purposes as required by central bank, but will not be eligible to be used as collateral by banks that wish to borrow from central bank.
The head of global markets at Stanbic Bank, Mr Andrew Murugu, says that the term auction deposits will be different from Repos in that there will be no underlying security that will be transacted.
|
The product will therefore just involve the depositing of excess cash with CBK for some interest, unlike Repos which involve the sale of securities such as treasury bills to participating banks.CBK will then acknowledge the receipt of such deposits through issuance of statements of account.
Unlike Treasury Bills and Bonds that are used to plug budgetary deficits, the term deposits will be used purely as a tool for implementing CBK's monetary policy.Mr Murugu says that the new product is a welcome development that adds diversity to the management of Government monetary policy.
"The term deposit is a good development, the market needs a wide array of OMO tools," says Mr Murugu.
| |||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
| Copyright © 2008 Business Daily. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections -- or for permission to republish or make other authorized use of this material, click here. | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
| Make allAfrica.com your home page | RSS Feed | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
| Top | Site Guide | Who We Are | Advertising | Search | Subscribe | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
| Questions or Comments? Contact us. Read our Privacy Statement. | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
