Release of funds by the Kenyan central government to its 47 county administrations last week has improved liquidity in money markets.
Interest rates that Kenyan banks use to lend money to each other fell to the lowest level in two months after the government released cash to local counties, boosting liquidity.
Interbank rates were at 7.49% for a second straight day on February 14, the lowest level since December 16, according to data compiled by Bloomberg. Since the beginning of February, the rates have closed each day either lower or unchanged.
The release of funds by the central government of East Africa's biggest economy to the 47 county administrations last week improved liquidity in money markets, with cash chanelled through commercial banks, said Bernard Omenda, head of treasury at Nairobi-based Equatorial Commercial Bank.
The Kenya Revenue Agency has to distribute at least 15% of taxes it collects to the counties, according to the East African nation's Constitution.
"The release of those funds by the national treasury will be processed by the banks and will improve liquidity," Omenda said by phone on Monday. "There had been a delay in releasing money to the counties."
A call to Kamau Thugge, principal secretary in the Finance Ministry, wasn't answered on Monday.
The Central Bank of Kenya held its policy rate at 8.5% for a fourth time last month. The bank, which cut the policy rate five times from a record 18% since mid-2012, paused its monetary easing cycle in July. Inflation was little changed in January from a month earlier at 7.2%. – Bloomberg