Harare — THE local money market that had been rendered irrelevant as an alternative investment market by the forgettable period of hyperinflation is now emerging out of the woods.

Analysts said the revival of the money market has deflated the stock market performance, whose risk-adjusted returns are turning out to be inferior to those being awarded by the risk free fixed income securities market.

Disproportionate inflation during the Zimbabwean dollar era made the money market imprudent for rational investors.

Kingdom Stockbrokers said following the introduction of the multi-currency environment this year, coupled with the deregulation of financial markets the fortunes of money market investors have turned in their favour.

"The market has started awarding unrivalled positive real returns by any standard.

"Protracted liquidity shortages on the economy that far outweigh the insatiable demand for funding has given rise to exorbitant interest rates on the local money market as surplus units currently possess "monopolistic" leverage over ruling prices on the cash starved market," said KSB.

Activity on the market has of late picked up, with the recent Grain Marketing Board grain bill tenders being oversubscribed.

The grain purchasing institution received support totalling US$2,95 million against a target of US$2,5 million in its tender held on the 10th of December.

This was an improved support from its November tender that was undersubscribed, realising total bids amounting to US$1 895 000 with US$1,63 million being allotted.

The heightened interest in the tenders has been buttressed by the attractive returns offered by the 90-day paper, as well as subdued excitement on the equities market emanating from uninspiring financial results released by the bulk of corporates during the about to end reporting period.

In its recent tender, GMB advised that the highest rate tendered stood at 30 percent with 20 percent having been submitted as the lowest bid rate.

In the November tender, the highest bid rate was 40 percent whilst the lowest was 15 percent.

Compared to the November weighted average rate of 21,32 percent (23,53 percent when annualised), the December tender's weighted average rate firmed to 23,49 percent, which translate to an annual equivalent rate of 26,18 percent.

The return offered by the paper is superior to the 11 percent return offered by the aggregate ZSE index in the past ninety days, and is way above the 7,10 percent awarded by South Africa's 90 day Treasury bill paper.

Interest rates on Bankers Acceptances have also considerably firmed on the local money market, from around eight percent to 15 percent for 30 day Bankers Acceptances indicated during the month of September and October to around 20 percent to 30 percent for the wholesale market.

These rates are indicative of the sovereign risk the local economy faces and are relatively exorbitant in comparison to the near zero lending rates prevailing in other sections of the global economy.

On the inter-bank market, the rates are even more outrageous, with four day placements attracting flat rates ranging from three to four percent, a situation that has benefited financial institutions and corporates that are highly liquid.

The prevailing interest rates therefore offer attractive positive real returns to investors given that annual projected inflation rate for this year stands at -5,5 percent whilst that for 2010 is currently projected at 5.1 percent.

Investors have also been attracted by the quality of the 90-day GMB bills currently on the market.

The risk free bills have a prescribed asset status, liquid asset and tax exemptions features and CBZ Bank Limited provides security for the bills.