According to the National Bureau of Statistics (NBS), inflation has jumped to 19.8 per cent for the month of December last year. According to the public notice, the central bank intends to raise 100bn/- in a tender divided into 35bn/- for 264 days, 30b/- for 182 and 91 days respectively and 5bn/- for 35 days.
The rising inflation rate and tight liquidity policy in the market explains the high rate of return that investors demand amidst what can be termed as the central bank’s reluctance to borrow money at high costs.
Analysts point out that the inflation rate will keep on rising in the coming months following an increase of power tariffs which will necessarily push up prices of various commodities. Likewise, the central bank action in the short term maturities has a very big impact on rate movements.
Commenting on the increased power tariff, the BoT Director of Policy and Research, Dr Joe Massawe said in an interview that the inflation rate will decline to single digit pending the implementations of government investment plans on power generation and agriculture.
“This will have positive impact in the long run for the power tariff and food prices to decline which will necessarily pull down inflation rate into a single digit,” he said. However, he said stability on food prices would depend greatly on good harvest in the neighbouring countries.
The previous one year treasury bills maturity saw the 364 days offer fetching 19.73 per cent interest rates which was above the annual headline inflation of 19.2 per cent recorded in November last year.
The hiked rate of return won investors’ confidence on the 364 days offer and was oversubscribed with the total amount tendered jumping to 50.78bn/- against 35bn/- tendered. But interest rates for the six and three months declined to 17.21 per cent and 12.65 per cent respectively.