Bankers in lurch as TB rate edges higher

Dumisani Ndlela



BANKERS were put in the lurch on Wednesday after a sudden splash of cash in the market left them with surplus money, but the 91-day treasury bill (TB) ra

te still edged higher after the Reserve Bank of Zimbabwe (RBZ) hiked the key accommodation rates by 50 percentage points.


This raised fears the central bank was likely to push them into two-year TBs, penal money market instruments used to punish banks with surplus positions.


Banks were jostling to find alternative instruments to put their money to avoid the penal two-year TBs, but those interviewed by businessdigest said there were no takers for cash.


“There has been no interbank trade since afternoon, every bank that I have talked to is in a surplus,” a dealer said on Wednesday.


The money market, which was forecast to be in the red on Wednesday, was expected to turn into a surplus position owing to the huge cash that moved into the market.


It was not immediately clear what the source of the huge funds had been, but speculation abounded that government had injected huge cash amounts into the system for pension payments and salaries.


The RBZ has since February maintained a very tight monetary policy, keeping the market very short in efforts aimed at reining in rampant inflation.


The central bank this week increased the accommodation rate from 800% to 850% for secured lending after inflation surged to a record 1 043% in April.


The accommodation rate for unsecured lending shot up to 900%, from 850%.


The market, which initially expected no rate hike, had last week been surprised when RBZ governor Gideon Gono told news agency journalists in South Korea that he would hike the rate by 100 percentage points, saying: “The central bank will respond decisively to any inflation challenges.”


Gono said the country’s inflation would keep falling sharply after peaking at around 1 200%, to below 400% by December this year and less than 50% by June next year.


“By December 2007, we think our inflation will be below 15%, and by the first quarter of 2008, we think our inflation will be in the single-digit level,” he added.


The central bank last increased its lending rate by 50 percentage points on April 25, after increasing it by 100 percentage points a month earlier again on the back of a rise in inflation.


Bankers have lately lamented the high accommodation rates, saying they were causing haemorrhage in the financial.


Commercial banks, which hold over 90% of deposits in the financial sector, are holding huge TBs in their portfolios, most of which have yields averaging around 300%.


However, the banks were financing their positions at rates in excess of 850% through the overnight accommodation facility of the central bank, creating huge gaps between their financing costs and the cost of their TB assets.


The TBs are difficult to redeem for cash until maturity, and this has forced banking institutions to seek recourse from the central bank through the overnight accommodation window to fund short positions.


Critics have warned that RBZ governor Gono’s hike of the key in response to spiralling inflation spelt doom to the country’s industrial sector because interest rates had become “overly high and therefore unproductive”.


“This policy rate stance coupled with a statutory reserve ratio of at most 60% for commercial and merchant banks constitutes a very tight monetary policy,” said Kingdom Stockbrokers last month.


“A comparison of the current interest rate regime with annual inflation by converting the rates into their annual equivalents shows that borrowers are paying through the nose,” the equities trading firm said.