TB maturities to dampen money market rates

Shakeman Mugari


A RECORD $25 trillion in treasury bill maturities in May could swing the money market into huge surpluses, ending months of biting deficits under a tight monetary policy regime by the central bank.

Market analysts said the maturities, to be

followed by another $36 trillion to be released into the market in June, could reignite speculative tendencies, further hurting the efforts by the central bank to tackle the inflation scourge.

This month, $14 trillion worth of treasury bill maturities will be unleashed on the market.

This, coupled with civil servants salaries next week, would trigger huge volumes of cash on the money market, analysts said.

“The maturities will flood the market with excessive liquidity and that will cause an interest rate retreat leading to speculative activities,” said Witness Chinyama, group economist with Kingdom Financial Holdings.

A tailspin of interest rates due to money market surpluses would trigger negative returns on investment, stoking speculative tendencies.

Chinyama said the central bank was likely to roll over the TBs or pay for the maturities.

Either way would be costly to the taxpayers, Chinyama said.

A roll over of the TB stock would increase the government debt, blamed for stoking inflation.

To repay the maturities, the government would run the money printing machines, which would also increase inflation by growing money supply.

“That will further push inflation, probably to four digits this time around,” said independent economist James Jowa.

“It’s a debt trap,” Chinyama said. “We will keep on moving in circles unless there are comprehensive measures.”
 
Government has been blamed for stoking inflationary pressures in the economy by running huge deficits financed through domestic borrowing and money printing.

The International Monetary Fund (IMF) said Zimbabwe’s deficit could be as high as 60% of GDP, contrary to claims by the government that its deficit for 2005 was just below 3% of GDP.

The looming liquidity on the market comes against the backdrop of a failing war against inflation by the central bank after inflation reached an all-time high of 913,6% year on year for March.

The RBZ had projected inflation to peak at 800% in March before decelerating.

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