Treasury pushes to restore 'monetary stability'

Finance Minister Uhuru Kenyatta said yesterday there was a need to restore monetary stability in east Africa’s biggest economy, where interbank interest rates surged past 20 per cent this week.

Speaking to reporters to announce a Sh1.1 billion ($11.9 million) food aid grant from China, Uhuru said the Finance ministry was in discussions with the Central Bank of Kenya about monetary policy.

He also said inflation was clearly above the predicted range and high energy costs were a challenge for industries, but the growth pattern seen this year was likely to continue.

The weighted average interbank lending rate rose to 24.25 per cent on Wednesday from 22.29 per cent a day before and from 8.34 on August 12, when the central bank tightened its overnight borrowing rules to support the under-pressure shilling.

"We need to take some action towards that end, basically just to ensure we restore some kind of stability on the monetary side of our affairs," Uhuru said.

"We are in discussions with the Central Bank to deal with this particular issue so that stability and normalcy returns."

While the high interest rates have helped stem the shilling’s slide this month, they have also ramped up the cost of borrowing for the Treasury.

The bank raised just over a third of the Sh10 billion it had sought in sales of five and 30-year Treasury bonds on Wednesday, and yields on both securities jumped.

Central Bank said it received bids worth a total Sh8.7 billion for the bonds, and accepted bids worth just Sh3.48 billion.

Treasury yields have been rising steadily this year as inflation surged into double digits on the back of high food and fuel prices. The headline rate hit 15.5 per cent in July, the ninth straight monthly increase.

"Inflation numbers are definitely out of the range we had originally predicted," said Uhuru.