HomeBusiness DigestInterest rates breach 900% mark

Interest rates breach 900% mark

Godfrey Marawanyika

INTEREST rates this week broke the 900% mark as the curtain came down on 2003 before eventually sliding back to 850% by close of business on Wednesday, a trend that has largely been cause

d by some banks not having enough funds to cover their shortfalls.

The latest development comes hard on the heels of the parallel market which has also suffered a major dip against the major currencies as the greenback was being sold for between $4 000 and $5 000, down from $6 000.

When markets opened this week rates firmed to 975%, then slightly went down to 940% on Tuesday before ending the year on 850%.

The continued rise of interest rates has also been caused by the reaction by financial institutions towards monetary policy.

“The rates have continued to rise largely because of the market reaction towards the monetary policy, as some banks are now fearing to go to the Reserve Bank to ask for cover,” Nyika Chideme, an investment analyst with Highveld Discount, said.

“Some banks who seem to have a lot of cash seem to have taken a position not to extend their cover to other institutions. Some banks who are looking for cover have not been able to access money from anywhere.”

Last month during his budgetary statement, central bank governor Gideon Gono said any liquidity support would attract penal rates as it should be “assumed”, until proven otherwise, that such support has been necessitated by the “diversion of funds to the non-productive and speculative activities”.

Chideme said since the greenback was being accessed at $4 000 largely indicated that some firms had taken a position not to purchase hard currency adding that markers were also digesting how the floor auction system would work.

The forex auction system is set to come into effect later this month as government and the central bank try to channel hard currency into the formal market.

An economist said the parallel market had slid to such low levels over the past week largely because of the end of year shutting down period, thereby leading to small demands of hard currency.

Best Doroh, an economist with Zimbabwe Financial Holdings Ltd, said although the market was in surplus a number of banks were in the red.

“As it is right now a number of banks are in short, in fact a number of them have suffered significant high rates of withdrawals,” Doroh said.

“It seems two or three banks have cash but the rest are in short supply.”

He said the continued rise of inflation had also had a bearing on the demand for cash, thereby pushing up interest rates. Currently inflation is 619%.

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