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Barbican Asset Management

Money market rates continue to soar

THERE has been an interesting developmentin the markets in the past months as the economic outlook of our beloved country continues to plunge.

Verdana, Arial, Helvetica, sans-serif”>This week we take a closer look at each of the markets independently.

Money markets

The tug of war between the mother bank and the banking sector continues.

While the Reserve Bank of Zimbabwe (RBZ) has tirelessly strived to bring interest rates down, the market continues to ignore the controlling body’s views and wishes as evidenced by interest rates now hovering between 120% and 140% compared to between 75% and 85% that the central bank wants to impose.

It is interesting to note how the market has considered the central bank irrelevant as it continues to thrive even though the central bank is refusing to accommodate them through the overnight window. This has been partially caused by the fact that market participants are failing to raise the required security (Treasury Bills) required.

The failure by the market to raise the security is a result of the continuous rejection of tenders on TBs by the RBZ, as the market is demanding yields of up to 130% compared to the 75% that the central bank is willing to pay.

The market is finding it very insensible to fund an investment that yields 70% using funds that cost 130%. As a result we have had a situation whereby the market demands yields around 120% on TBs, which the RBZ has always rejected.

With inflation still galloping, investors are trying hard to secure an interest rate that continuously reduces the negative gap.

It will be surprising to see money market rates coming down in a market that is continuously seeing growing shortage.

The stock market

The stock market has remained on the downside for the greater part of the month.

At first it looked like mere profit taking that however degenerated into panic selling. This saw the market crushing heavily.

On a month-on-month basis the main index has lost 91 428,13 points which represents about 13% over a period of 30 days.

The macroeconomic outlook remains very bleak. Investors remain uncertain about the future of most companies with particular reference to those listed on the stock market.

This and the firming of money market rates has significantly contributed to the bearish sentiment on the local bourse.

It has however, been noticeable in the last few days that the market has stabilised, gains have not been common in a number of counters.

It is a general market consensus that most of the stocks are now cheap hence buying pressure is expected soon. We therefore view the developments as giving investors a chance to buy into equities. Stocks are expected to gain although marginally in the near future.

Foreign exchange market

The foreign exchange market has remained quiet since the authorities began hunting for those participating in the parallel market which of late had become the backbone of most companies, especially those that import raw materials.

Rates have softened by more than 25%. Because of the difficulties currently haunting this market, most participants have opted out into money market investments where rates are improving hence reducing buying pressure on currencies.

It is however, clear that the death of this market might as well result in the death of the industry and the economy.

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