BoT Governor Prof Benno Ndulu said accepting all bided money will push out of the equilibrium of money supply on the economy, distorting interest rates and triggering inflation.
“T-bills are instruments of controlling money supply in the economy, we cannot just accept all offered amount without looking first at other parameters,” Prof Ndulu told the ‘Daily News’ over the weekend. He added: “The amount on offer is what we want to mop out from the market at the time of the auction …we (seldom) go beyond the limit.”
The central bank on Monday announced a 100bn/- T-bill auction, which the market said it is expected to be received well by the market amid obvious oversubscription. The governor said the central bank will continue accepting the same size starting by taking the bids low discount yield until fulfilling the entire tender amount.
He also said the T-bills are designed to control inflation through money supply and the amount mopped out does not mean the government is in dare needs for money. Standard Chartered Bank said yesterday the central bank has maintained Treasury bills’ size and it’s a positive trend.
“It remains to be seen as a positive sentiment. We expect over subscription and curve to decline between 100 to 150basic points (bps),” the bank said on its daily market update. BoT’s Director of Policy and Research Joe Masawe told the ‘Daily News’ recently that the banks are awash with cash because they have received a lot of deposits for school fees, as students are going back to school.
The oversubscription trend was observed since the beginning of this year when the bill’s yield rate went up to 19 per cent, for 364 days bill, to off-set the high inflation rate risks on returns.