Announced for the end of this week, underwriting for 10-year-old Kenyan treasury bills is expected by analysts.
At issue, a moderate appetite for the country’s debt, institutional investors waiting for the draft budget law, which proposes including repeal the interest rate ceiling, be adopted by Parliament. “In the event of parliamentary validation, the removal of the interest rate ceiling would lead to an increase in interest rates on government securities, which would make the rate (expected between 12.5% and 12.8%) less attractive. ‘current bond subscription,’ says Olivier Muneza, an analyst at MBEA Securities in Kigali. This is the second bond issue of the current year for 10-year treasury bills.
Spearheaded by Treasury Secretary Henry Rotich, the proposal to repeal interest rate controls – enforced since September 2016 – is aimed primarily at supporting economic growth by reviving lending to the private sector.
Paradoxically, private sector operators have indeed suffered from the cap on interest rates, financial institutions preferring most often increase their investments in government bonds rather than finance private activity, considered more risky and insufficiently remunerated under capped rates.
As a result, “the legislator’s approval of the proposed removal of the interest cap would be bad news for the Kenyan public debt market, which until then had had a captive source of capital,” says Olivier Muneza.
But the proposed amendment is far from consensus: pressure groups such as the Consumers Federation of Kenya (Cofek) have vowed to resist this decision.
