AN exceedingly liquid market kept interest rates in a tailspin, with indications the drift was likely to continue in the course of heavy treasury bill (TB) maturities expected to hit a record $82 billion in October alone.
The bulk of the ma
turities will be for interest payments on government debt for 91-day TBs issued at yields of between 510% and 525%.
The slide in rates has put pressure on investors who had shunned long-dated paper in anticipation of a policy shift by an unpredictable central bank that brought rates down considerably in August.
Market expectation of inflation topping 1 000% year-on-year for August was increasing concern that the low interest on long-term money market instruments would translate into sub-inflation earnings.
But with huge treasury bill (TB) maturities ruling the market, investors were beginning to lose hope of any sudden shift in policy by the Reserve Bank of Zimbabwe (RBZ) in favour of a high interest rate regime, especially considering that record maturities of $150 billion, or $150 trillion under the recently abolished currency system, were due for redemption this month and in October.
This month’s maturities will amount to a notable $68 billion.
Most major commercial banks were shunning the TB auctions since the central bank’s policy review on July 31, hoping the interest rates would shortly be reviewed in line with the inflation outlook.
The banks had been parking their funds in penal 7-day non-interest earning instruments.
The central bank scrapped the contentious two-year TB paper, replacing it with a “special sweeping accounts” for all clearing banks into which surplus funds after settlement are transferred and kept at 0% interest for seven days.
Last week, the central bank issued 365-day TBs at 300%. Dealers said there was active participation on the tenders, but this had weakened yesterday when the central bank came to the market with fresh 365-day instruments at an average rate of 237,43% in the morning tender, a significant drop from last week’s rate.
The rate was expected to decline further in the afternoon tender.
The 181-day TBs, the major money market instrument by the central bank since its policy review last month, had an average rate of 250% during the last 181-day TB tender on Tuesday last week, but the rate on the instrument had plunged to 199% on this week’s Tuesday afternoon tender before taking crashing further to 143,44% in Wednesday’s afternoon auction.