Cde Monomotapa wrote:
go onto
www.centralbank.go.ke and read the 3 circulars thereon. Don't rely on the papers. U will realise that the CBK is managing monetary policy by reinforcing itself as the lender of last resort by imposing a steep discount window rate to curb arbitage and also make it clear to banks that b4 they go to the window for liquidity, 1st consider selling ur t.bills, bonds and ESPECIALLY FOREX (held for speculation & gambling). Basically, what he is saying is...do what a bank is created to do and that is, raise deposits & make loans - simple. For that he has my full support.
When they began accomodating in mass earlier through the lender of last resort facility ... they should have known that once they opened that window wide ... any threat to it shutting down would only result in money mart rates being jacked up. They should know this and should remove the cbr peg or place a cap. And to the best of my knowledge liquidity is skewed and this is a problem that hasn't been solved.
No t.bills have been discounted so far, which would have been the easiest option @ 3% above market. Instead many banks opt for more expensive alternatives; bond portfolios are in the red, pricing in the swaps market can't be easy to do and hrt volumes are almost zero (even though they're collateralised). What happens if ur a small bank with few lines of credit?
It's the disharmony between fiscal/monetary policies that have created this problem. You'll find that fiscal policy will suffer as a result of the above move (let us see next week's auction). What we needed was the aggressive use of their signaling tool, the cbr.
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden