INTEREST rates have dropped dramatically on the back of heavy liquidity injection from the Reserve Bank of Zimbabwe (RBZ)’s recent move to offer support packages to six troubled banks.
Over the last two weeks interest rates have receded from a high of more than 900% to below 50% as sanity returns to the financial market.
Banks and financial firms are charging interest rates of between 20% and 60%.
The rates had skyrocketed a week after the monetary policy statement, leaving banks to scurry to cover their positions to meet their obligation to depositors.
Last week the RBZ bailed out six banks from a serious liquidity crisis after they confirmed that they were facing a serious shortfall.
This, according to market consensus, increased the liquidity in the market and pushed the rates to below the 50% mark.
Barbican Bank said it was quoting rates ranging from 15% to 40% depending on the duration of the investment.
“The central bank poured in a lot of money to serve the indigenous banks. This has provided excessive money on the market and demand is now low,” said an official in the bank’s treasury department.
ABC Holdings Ltd is quoting some of the lowest rates in the market with a 15% yield for a month-long investment and an 8% for 14 days.
The rates however vary with the amount invested. The Jewel Bank of Zimbabwe said it was offering between 20% and 40% due to the surplus funds on the money market.
Other banks attributed the rates to the increased allocation from the RBZ’s productive sector support rates.
Most manufacturing companies have begun accessing the funds at 30% from the RBZ.
Reports from banks indicate that almost all manufacturing firms that applied for funds were successful.
An analyst at NMB Bank said this had created low demand for funds.
“Most manufacturing companies have now turned to the RBZ for cheap funds. The bank has been quite liberal with the money,” said an official at NMB Bank. “This creates a low demand on the money market, and thus pushes the rates down. It is based on demand and supply.”
Due to the downturn in the asset management business there has also been a sharp decline in consumptive borrowing.
NMB Bank was this week quoting rates of 15% on a 14-day investment and 35% on 30-day investment.
Most companies that had borrowed at high interest rates are now using subsidised productive sector rates to service their debts. Zimbabwe Financial Holdings Ltd has temporarily suspended investments in the money market owing to the excessive liquidity on the market.
“We are not quoting rates today. There are a lot of free funds coming into the bank through the deposits,” said an official in the bank’s treasury division. The crunch that has hit asset management companies has also contributed to the plunge on the money market. Most asset management firms had liquidated their properties to cover their positions and meet obligations on the market. Meanwhile, Zimbabwe’s inflation went down for the first time in two years to 598%, down from 620% in November.