Tuesday, July 12, 2011

Central Bank of Kenya Reverses Discount Window Rate to 6.25%

The Central Bank of Kenya (CBK) reversed its 29 June 2011 decision, lowering CBK discount window rate to 6.25% from 8.00%.  The CBK maintained the central bank rate unchanged at 6.25% (having increased it 25bps on the 31st of May this year).  The Bank said in its circular: "Central banks always run discount windows as facilities of last resort as a means of providing temporary liquidity to banks in extreme cases.  The CBK is concerned that recently, commercial banks have not been using the Discount Window as a last resort, but as a permanent supply if liquidity."

The CBK also outlined measures to restore proper use of the Discount Window e.g. no access for banks that lend in the interbank market, and restrictions on borrowing to a maximum of statutory cash reserves.  Previously Kenya's central bank increased the CBK discount window rate by 125bps to 8.00% at the end of June.  Kenya experienced inflation of 14.49% in June, up from 12.95% in May, compared to 12.05% in April and 9.19% in March, according to inflation data from the Kenya National Bureau of Statistics.  The Central Bank of Kenya has an inflation target of 5 percent.


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