Central Bank raises discount window rate to 15.68 per cent

By JAMES ANYANZWA

Central Bank of Kenya (CBK) has further increased its lending rate at the discount (overnight) window to 15.68 per cent from 11.34 per cent as the banking regulator steps up efforts to fight inflation and preserve the value of the shilling.

The operational interest rate for the CBK discount window is reviewed from time to time and posted on the CBK website daily by 9am.

Commercial banks borrow from CBK as the lender of the last resort to meet their daily obligations at the clearinghouse.

Last week, CBK further tightened the rules governing the use of its overnight credit window as the banking regulator moved to rein in inflation and curb persistent volatility in the foreign exchange market.

The banking regulator said any commercial bank lending in the interbank market would not be allowed to access funds through the CBK discount (overnight) window on the same day.

Similarly, any bank borrowing from the CBK discount (overnight) window is prohibited from lending in the interbank market either on the day of accessing the window or on the following day.

In a circular to the chief executives of all commercial banks released on Friday, the regulator said interest rate to be charged at the CBK discount (overnight) would be calculated based on a certain formula.

Consequently, the interest rate at the CBK discount (overnight) would be derived as CBK rate (CBR), which is currently at 6.25 per cent, plus the previous day’s average interbank rate minus the CBR plus a penalty of three percentage points.

The new guidelines which takes effect yesterday also stipulates that central bank considers an individual bank’s foreign exchange trading behaviour over the previous four trading days in determining eligibility for access to the CBK discount (overnight).