RBZ seeks to raise US$25m

THE RBZ will seek to raise around US$25 million when it introduces short-term money market instruments in the next two weeks at market rates, governor Gideon Gono said.
Gono said this while presenting his monetary policy statement. He said the short-term paper would help eliminate attendant interest rate distortions in the money and capital markets, reduce high bank charges, facilitate interbank trading and provide a benchmark interest rate.
However, analysts say that it is too late to introduce paper as banks do not have excess liquidity to buy the paper. They say, this would have worked well if it was a tool to mop up excess liquidity and manage interest rates.
Gono said that the paper would have a 90-365-day tenure. He said once government paper was issued, bank charges would be streamlined while, lending rates would normalise and the lender-of-last-resort window could function smoothly with requisite collateral.
The bank has been advocating the issuance of government paper in the form of Treasury bills, which will also be used as security in the inter-bank market as well as under the lender-of-last-resort function.
According to Gono, the lack of investment instruments on the domestic money market, has forced banks to hold significant balances either in cash or RTGS accounts. Reflecting the lack of activity in the money market, surpluses in the form of idle RTGS balances had risen from US$120 million in January, US$243 million in February and were US$300 million in June 2012.
Finance minister Tendai Biti announced in the July 2012 mid-term fiscal policy review Statement government’s intention to issue short-dated instruments as a bold step in the right direction.
The issuance of government paper will resuscitate the non-functional money market and re-activate the interbank market while at the same time resolving the government’s seasonal cashflow challenges.
In the same vein, government converted the outstanding statutory reserve obligations of the Reserve Bank, amounting to US$83,4 million, into stocks of two, three and four years, at coupon rates of 2,5%, 3% and 3,5%, respectively on March 1 2012. The first coupon payment on the government stocks amounting to US$1,268 million was made on July 2, 2012.
The Reserve Bank recognises the progress that has been made in laying the groundwork for the re-activation of the lender-of-last-resort facility in view of short-term liquidity challenges being faced by some banks.
In addition, the simultaneous issuance of the short-term instruments will assist in the proper functioning of the facility, while acting as a guide on the interest rate structure in the economy.
A functioning lender-of-last-resort facility plays a pivotal role in the provision of liquidity to banks experiencing short-term liquidity challenges. As such, the Finance minister in the mid-term review statement announced that government had approved the establishment of a US$150 million Lender-of-Last-Resort Fund, under which, private investors are expected to contribute US$120 million.

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