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Zimbabwe: Liquidity Hits $1.5 Quadrillion
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Financial Gazette (Harare)
27 March 2008
Posted to the web 27 March 2008
Dumisani Ndlela
Harare
MONEY market liquidity burst through the quadrillion-dollar mark on Thursday on increased government spending, crossing the forecast position for the day by a massive $600 trillion.
Liquidity had always appeared headed for the psychological quadrillion-dollar level for quite some time, but had barely been expected to reach that mark on Thursday, when the market was expected to be in surplus to the tune of $700 trillion.
The market closed drenched to the tune of $1.5 quadrillion on Thursday, the first time liquidity went through the quadrillion levels after a spell in the trillion dollar zones since the start of the year.
"It's money coming from the government for the civil servants salaries," a dealer told The Financial Gazette this week. "It's money for salaries as well as for the elections," he said.
He indicated that statutory reserve payments expected on Tuesday after the Easter holidays as well as corporate tax payments during the week were expected to sterilise the market and keep it "squarish".
Apparently, the Reserve Bank of Zimbabwe (RBZ) has not intervened to mop up the market of excess liquidity in line with its tight monetary policy to reign-in runaway inflation.
This reinforced suggestions that the excess cash was not emanating from the banking sector but, rather, from the government.
Domestic debt recently burst through the quadrillion-dollar mark to reach an all-time high of $1.6 quadrillion in the first week of March, after touching a high of $60 trillion at the beginning of the month.
The government is facing increasing expenditure pressures emanating mainly from escalating inflation, which recently touched 100 580.2 percent year-on-year for December 2007, a world record for a country not at war.
The government has entirely depended on domestic sources to finance its ever-increasing budget deficits, resulting in increased money printing.
Bilateral and multilateral financial institutions terminated balance of payments support to the country over alleged human rights violations by President Robert Mugabe's government, accused of rigging the 2002 presidential election to retain power.
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President Mugabe's government has denied the accusation, arguing it is being villified for redistributing land from the white minority to landless blacks.
The RBZ appeared to also have deliberately avoided sweeping the market to prevent a liquidity crunch that could have resulted in banks failing to pay depositors withdrawing their money.
Money market dealers said the interbank market was dry, despite the huge liquidity on the market. The bulk of the excess cash was concentrated in building societies and other low-balance institutions like the POSB where the majority of civil servants hold their accounts.
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