Short-term rates soften, spur bourse

Dumisani Ndlela


BULLS showed signs of resurgence on the local bourse after short-term money market rates slumped and inflation spiralled to a new all-time high last week.

The key industrial index, which had been down 5,74% last week to close at 29 264 885,

12, rebounded marginally during the week to close at 30 287 864,19 on Tuesday.

“It’s beginning to adjust to new inflation levels and softening short-term rates,” a broker told businessdigest.

The stock market has been dragged down by high interest rates and a tight monetary policy that had kept the market short.

The liquidity crunch, which intensified during the early part of last week with a shortage of $9 trillion being recorded on Tuesday, money market shortages had eased, reflecting expected treasury bill maturities amounting to $14 trillion  this month.

Reflecting this development, interest rates that were being quoted at 300% on the short-end of the market (7-14 days), had fallen to around 100%, with 90-day rates remaining perched at levels around 500% due to the continued existence of 525% 91-day treasury bill rate, a market analyst said.

“In the medium to long-term, we expect the (stock) market to pick up on the back of easier liquidity conditions on the money market that should see short-term interest rates softening.  Those with extra cash should buy into quality counters,” said Patrick Saziwa, an analyst with Kingdom Stockbrokers.

The market should be awash with cash in May and June, when treasury bill maturities amounting to $25
trillion and $36 trillion respectively are expected to test the central bank’s resolve to maintain a tight market to rein in inflation, currently at over 900% year-on-year for March.