The interbank rate went up by 1.2% from 13.8% to 15% on Monday and rose even further to 16.3962% as at the close of business on Tuesday.

The interbank rate is the cost at which commercial banks borrow from each other.

This increase seems to be in response to the CBK’s mopping up of excess liquidity in the money market over the last few days. Since last week the CBK has mopped up Ksh 32 billion from the market in a bid to curb inflation and strengthen the Kenya Shilling. The interbank rate may rise further during the week to equal the Central Bank Rate (CBR) of 18%.

This mopping up has reduced the cash available to commercial banks for lending amongst themselves and this in turn has pushed up the interbank rate. The steps taken by the CBK seem to be having a direct impact on the money market.

Read more on the trend the interbank rate has been following over the last month here.

Read more on liquidity here: What is liquidity? Why is excess liquidity undesirable?