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Zimbabwe: Turmoil Hits Markets
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Financial Gazette (Harare)
27 March 2008
Posted to the web 27 March 2008
Dumisani Ndlela
Harare
MARKETS yesterday lurched into turmoil after the Reserve Bank of Zimbabwe (RBZ) issued a raft of new policy measures, including an ultimatum to manufacturers of commodities to produce enough for the depleted retail market within two days.
Sources said executives from key manufacturing companies, among them multinational Uniliver Southern Africa, were summoned by the central bank and ordered to fully supply the market within 24 hours or risk being charged penal rates on cheap funds lent by the RBZ to the companies to boost production.
The new measures followed a strike on the banking sector by the RBZ, which hiked the statutory reserve payment ratios and re-introduced the Non-Negotiable Certificate of Deposit (NNCD), increasing its tenor from seven days to three months.
It was the first time in weeks that the central bank moved to sweep the market, which has experienced huge liquidity levels, which crossed the quadrillion level for the first time last Thursday to touch a record high $1.5 quadrillion.
The key accommodation rate -- widely viewed as the cost of money -- surged from 1 200 percent for secured borrowing to 4 000 percent, and from 1 650 percent to 4 500 percent for unsecured borrowing under the facility.
The new measures triggered a stampede for treasury bills by banking institutions as they fought to avoid parking excess cash into the non-interest earning NNCD's, used by the central bank to mop up excess liquidity and to punish financial institutions holding excess cash.
Dealers reported a Treasury Bill (TB) take-up of $93 trillion yesterday, a record subscription rate for the money market instrument.
The take-up level for the TBs was likely to forestall a hugely surplus market, which had been forecast to close $1 quadrillion up yesterday.
Statutory reserve rations were hiked to 50 percent on all classes of deposits for commercial banks, merchant banks and discount houses, from between 35 percent and 45 percent depending on the type of deposits.
Statutory reserve payments for building societies were kept at 10 percent on condition that they aggressively participated in high-density housing projects.
Building societies that fail to comply with this measure will make a penal statutory reserve payment of 40 percent of deposits. Statutory reserves, which are a percentage of bank deposits, sit at the central bank and earn no interest for the financial institutions.
But the biggest shock was kept for the industrial sector, which received cheap loans to increase production under the basic Commodities Supply-Side Intervention Facility (BACOSSI).
Sources indicated that manufacturers were yesterday warned that should they fail to supply the market adequately within 24 hours, interest on BACOSSI loans, pegged at 25 percent, would be raised to 2 000 percent, while the Zimbabwe dollar component of foreign currency given to the manufacturing companies would be exchanged at parallel market rates, currently close to $90 million per greenback against the official exchange rate of $30 000 to the United States unit.
Efforts to obtain comment from RBZ spokesman, Kumbirai Nhongo, were unsuccessful as he was in a meeting when contacted last night.
The National Incomes and Pricing Commission chairman, Goodwills Masimirembwa, who attended yesterday's meeting, was not reachable on his mobile phone number.
A number of companies, which had used the cheap funds to meet operational expenses like salaries, could be forced into bankruptcy should they fail to charge the high interest rates and pay parallel market rates for foreign currency received from the central bank under the BACOSSI.
BACOSSI was introduced in October last year to promote a speedy return to normalcy in the supply of essential goods after a price blitz in June triggered massive shortages across the country.
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The Financial Gazette has established that manufacturers and producers sanctioned by the central bank yesterday include food processors, poultry and piggery producers, beverages makers, bakers, sugar producers, cooking oil and magarine makers and meat processors and abattoirs.
When BACOSSI was extended to the private sector, it was said to be a production-linked financial lifeline for working capital requirements.
The market still remains bare of most critical basic commodities, with the majority of supermarkets across the country having empty shelves.
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