Influence of Interest Rate on the Growth of Bond Markets in Kenya

Abstract

Bond markets refers to the market where trading of debt securities takes place and contributes to the economy by providing an efficient economic system. The study established the influence of interest rate on growth of bond market. Additionally, the study examined the moderating effect of diaspora remittance on the combined relationship. The secondary data obtained from the CBK, KNBS and NSE was used in the study for a period of 20 years. The study employed descriptive research design. Time series regression model was applied where data was presented in form of tables and graphs. The study findings revealed that the interest rate had a strong positive influence on the growth of bond market. After introducing a moderator, the effect improved with significant p value. The study found a positive significant relationship between interest rate and growth of bond markets in Kenya. It`s therefore recommended that the CMA as a policy maker should improve on the policies that stabilizes the variability of interest rate. Further studies should also be carried out incorporating other macroeconomic variables not included in this study. Finally, the study also recommended that CBK should ensure that it improves on measures that control the interest rate variability as it influences the growth of bond market.

Keywords: Interest Rate, Bond Market Growth, Diaspora Remittance

DOI: 10.7176/RJFA/13-3-03

Publication date: February 28^th 2022