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Zimbabwe: Money Market Rates Remain Subdued
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Financial Gazette (Harare)
8 May 2008
Posted to the web 9 May 2008
Harare
MONEY market investment rates have remained subdued, forcing hot funds out of the banking system and intensifying buying pressure on non-cash assets, as investors battled to preserve wealth against the backdrop of escalating inflation.
Rates remained stuck at around 100 percent for most cash investments, with the longer dated 60 to 90 day investments attracting the higher rates of around 150 percent, with inter-bank overnight placements trading at rates below 20 percent, an analyst with Kingdom Stock Brokers (KSB) said.
He said the investment rates continued subdued due to easier liquidity conditions. Some banks, trying to safeguard their positions in the face of punitive surplus rules, were not even quoting rates for seven to 14-day investment instruments.
"All money market investments at the moment are yielding a negative real return of 100 percent, meaning that at maturity of one's fixed income investment, the investor will have gained absolutely nothing," said the analyst.
The low rates have put increased pressure on withdrawals, resulting in the recurrence of cash shortages, which this week forced the central bank to introduce high denomination bearer cheques -- now used as standard notes in Zimbabwe due to escalating inflation -- of $100 million and $250 million.
This is the third set of high denomination notes to be issued this year. The others were a $50 million note brought into circulation in April and a $10 million note introduced in January.
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Reserve Bank governor Gideon Gono last week also increased withdrawal thresholds from $1 billion to $5 billion per day for both corporates and individuals.
"Although the (Reserve Bank) governor increased daily cash withdrawal limits by 400 percent to $5 billion, it should be noted, however, that a long-lasting solution to the cash crisis is located in the stabilisation of the economy through reducing inflation and the re-establishment of positive real interest rates," said KSB, in a note to investors.
"Given that the amount of money held for transactions and precautionary purposes depends, among others, on the movements in prices, the current hyperinflation environment will soon render the new and higher cash withdrawal limit inadequate."
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