T-Bill, Bond rates drop signaling relief for anxious borrowers

One of the most critical borrowing rates has slumped after the State relaxed its borrowing from the domestic market, to signal possible relief for thousands of ordinary customers servicing bank loans.

Interest on Government borrowing has dropped by more than four per cent over the last seven days to an average of 16.49 per cent on a loan repayable in six months - before the rate surge it attracted an interest of 11 per cent.

However, the current drop in rate is a climb-down from 22 per cent the State had paid only two weeks ago for loans of a similar term, prompting commercial banks to as much as double their lending rates on new and existing loans.

Bankers now project that the cost of credit will fall in the coming weeks, taking the cue from the market rates.

“We expect the lending rates to begin a steady retreat in tandem with the decline in T-Bill rates,” Gideon Muriuki, the managing director of Co-operative Bank told the Standard yesterday. That sentiment would present a welcome relief of potentially lower rates for customers, with several lenders already factoring in the latest rate increases starting this month.

T-bill rates are the most accurate instruments of gauging the cost of credit in the market as they are widely regarded as the benchmark for pricing all other loans. Equity Bank Managing Director James Mwangi said last week that he did not expect the high-interest rate regime to last for ‘much longer’ and projected that lending rates would be back to normal by March next year.

Borrowers have been hit hard by the surge in lending rates with a resultant effect of a steep rise in their monthly loan repayments. Banks had cited scarce funds and the high T-bill rates as the cause of the revised rates, with most raising their cost of customer loans by between eight per cent and 12 per cent this year alone.

“The recent lending-rates surge that saw rates well above 25 per cent are unlikely to be continued going forward, and we expect them to settle in the region of 20 per cent in the coming weeks,” Mr Muriuki added in his forecast, which is still higher than the rates that most existing loans were issued at.

It is unclear if other banks will be as quick to adjust their lending rates in tandem with the fall in the Government’s cost of borrowing. Tens of borrowers have shared their anger with The Standard over higher loan repayments, which started around August. The cries prompted the State to relax borrowing from the domestic markets where it was in direct competition for funds with ordinary bank customers.

Treasury CS Henry Rotich has said that the cost of credit at home was unsustainable causing the country to seek credit from international lenders.