FILE PHOTO | NMG 

An increase in government payments to departments, agencies and suppliers has raised liquidity in the money market, pushing up the cash in the hands of banks and leading to heavy oversubscription of government securities.

Central Bank of Kenya (CBK) said in its weekly bulletin that the interbank market — an indicator of the liquidity situation in the banking industry—saw both a fall in rates and volumes transacted, meaning lenders were holding ample cash.

The excess funds in banks point to increased room for lending, in an economy which has been starved of credit in recent years as lenders instead pumped funds into government securities.

The banks have also benefited from the CBK move to lower of the cash reserve ratio from 5.25 per cent to 4.25 per cent in March, which was meant to give them additional liquidity to support borrowers who are negatively affected by the Covid-19 outbreak.

Some of the excess liquidity in the market is also being pushed into government securities.