THE Reserve Bank of Zimbabwe (RBZ) has with immediate effect barred the issuing of short-term paper to the financial markets but has not offered an explanation for its decision.
The move to bar short-term paper was announced by Hazvinandaa Saburi, the central bank’s acting division chief for financial markets.
Saburi made the announcement on Wednesday after a meeting with the country’s treasury managers from various financial institutions.
Before the decision, the market was distributing short-term paper which ranged from 7-14 days and attracted an average of at least 50% interest, the 30-day paper an average of 55%, whilst the 60-day paper attracted 60%. The 90-day paper attracted 75% interest.
The decision to bar the issuing of short-term paper means the central bank will now be issuing treasury bills only.
Treasury bills are long-term paper which normally come either as 91-day, 181-day, 365-day or 728 days.
TBs are issued by the central bank on behalf of the government to raise money.
If an institution breaches the new requirement it will be forced to buy a two-year paper which attracts a 17% penal rate.
Saburi had by the time of going to press not responded to written questions to his office about the decision.
By yesterday, the market was still digesting the likely impact of the central bank’s decision.
Analysts said the decision was caused by the failure of the market to respond to the central bank’s issue of long-term paper which resulted in a number of TBs being rejected.
They said the latest decision could backfire by causing serious liquidity problems in the financial market.
Earlier this year the central bank tightened regulations for firms that wish to take their investments out of the country by extending the remittance period from 72 months to 20 years. This applies to companies that are in the process of winding down their operations.
Under the system, capital appreciation is remitted through 4%, six-year government bonds.
“Accelerated remittance is possible where there is localisation (15%) (sic), discount (75%) to the company’s net asset value and dividend savings,” the RBZ said.
“Where the above is not met, the remittances will be made through the 4%, 20-year government external bonds.”
The central bank yesterday again summoned the treasury managers to explain how an auction bond would work.