UNCERTAINTY pervaded the money market this week as the central bank kept investors uninformed over its policy position on interest rates after failing to hike the key rate following a rise in inflation two weeks ago.
Inflation reached an al
l-time high of 913% year-on-year for March, from 782% in February.
The Reserve Bank of Zimbabwe (RBZ) has consistently raised the key accommodation rate, currently at 750% and 785% for secured and unsecured lending respectively, in line with inflation, indicating its resolve to see positive real interest rates in the market as well as its intention to use the blunt money market instrument to curb credit expansion.
“One thing that is worrying the market is the delay that the central bank has taken to adjust the overnight accommodation rate that currently stands at between 750-785% for secured and unsecured lending, respectively,” Kingdom Stockbrokers said in its weekly commentary to investors.
Short-term rates rebounded this week on the back of a tightening market after a brief tail-spin many analysts said had been sparked by an easing liquidity crunch.
Rates for 7-14-day investments increased to an average 300%, from around 225% the previous week, while 30-dy investments attracted rates around 325% after slumping to an average 300% last week.
The short-term rates strengthened against the backdrop of tightening intra-day shortages. The market was $4,6 trillion down on Wednesday, with shortages of $4,8 trillion having been forecasted for yesterday.
Banks were also reportedly paying a premium on investments to attract deposits and fund positions.
“Many banks are borrowed to the neck; they would rather pick a deposit at 300% and avoid paying 750% from borrowings at the central bank,” a bank analyst said.
Analysts said the market was comfortable with the central bank keeping rates at current levels but was worried by the uncertainty created by the RBZ’s silence on the issue.
“The market is in abeyance; there is no certainty on the next policy measures,” said Washington Mehlomakulu, an analyst with Highveld Financial Services, maintaining that it had become difficult to make decisions on positions to take on current tenders without clarity from the central bank.
Kingdom said the central bank probably felt inflation had peaked and therefore there was no compelling reason to maintain its rate hikes.