THE Reserve Bank of Zimbabwe (RBZ) yesterday stunned investors when it came to the market with 91-day treasury bill (TB) tenders, two days after restructuring its money market instruments into long-term instruments of between one and three-year tenors.
The sudden and unexpected shift in policy is understood to have been triggered by a startling rebound on the stock market, whose key index shot up a record 25% on Wednesday, sending quivers through monetary authorities who immediately responded with an unannounced policy alteration after fears its new strategy had no backers.
“The message that seemed to come across from the stock market rebound was that people had no appetite for long-dated paper,” a bank executive told businessdigest yesterday.
In his memorandum to all banking institutions on Monday, RBZ governor Gideon Gono said there were tremendous liquidity challenges in the second and third quarters of the year, with huge cash injections largely emanating from maturing open market operation (OMO) bills, the purchase of tobacco from the recently-opened auction floors, the purchase of grain by the Grain Marketing Board (GMB) as well as increased government expenditure.
Gono said these liquidity injections would pose enormous challenges to the fight against inflation if they remained unchecked.
As a result, he said, the central bank had adopted fresh measures in restructuring its money market instruments.
“Beginning Tuesday, May 9 2006, the Reserve Bank will be issuing long-term OMO instruments, with a tenor of at least one year,” Gono said.
The interest rates on the instruments, he said, would be inflation-indexed, based on the average annual inflation rates, plus a margin.
“The tenor of the long-term instruments shall range from one to three years,” Gono said, insisting that interest would be paid half-yearly.
However, the panic-stricken central bank governor had immediately made an abrupt and unannounced shift, issuing 91-day TB instruments after the stock market rallied, sending fears this could scuttle its new strategies.
The industrial index rose a massive 9 312 482,14 points or 25% on Wednesday to close at 45 556 117,66 points, while the mining index leaped by 2 904 214,64 points to close at 11 666 413,89 points.
This month, a record $25 trillion in TB maturities are expected on the market, with fears this could trigger a money market riot that could propel the stock market as well as black market activities in the economy that could stoke inflation.
Inflation is feared to have already breached the 1 000% mark for April after reaching 913,6% for March.
A planned release of new inflation figures on Wednesday was hastily called off without explanation.
In another memorandum to bank chief executives last month, Gono reiterated the central bank’s resolve to keep a tight monetary policy and maintain shortages against the threat of liquidity stemming from the huge maturities.
“We remain relentlessly steadfast in mopping up excess liquidity from the market, which itself is an imperative intervention any central bank ought to take when confronted with the threat of high inflation,” Gono said in his memorandum of April 24.