Money market investors seem to have shifted their focus to medium term investment from short term owing to the Reserve Bank of Malawi’s (RBM) reduction of the uncollateralised borrowing rate, analysts have said.
After the expiry of the non-collateralised discount window borrowing of 23.5 percent at the end of July, the RBM Governor Charles Chuka announced that its continuance will attract a charge of four percentage points above the bank’s prime lending rate.
With this charge, the bank’s lending rates shot up to above 40 percent, making borrowing for individuals and companies unsustainable.
But this month, RBM has reverted to the uncollateralised borrowing rate of bank rate plus 2.5 percent or 23.5 percent, a development that has brought stability on the money market, analysts say.
Before July, short term investment was attractive because investors were not sure of the direction of the economy and were not willing to lock their funds in the medium to long term, a time when yields on short-term investment were hovering at over 22 percent.
In the Treasury Bills (TBs) auction on September 11 2012, rates have decreased across all the tenors, according to auction results from the RBM seen by Nation Online.
The 91 days average TBs rate decreased to 18.53 percent from 18.57 percent, the average 182 days tenor rate also decreased to 21.74 percent from 21.94 percent.
The average 364 days tenor rate also slumped to 22.96 percent from 22.99 percent, the week before.
Of all the tenors, the 182 days TB was the most oversubscribed at 134 percent while the 91 days TB was undersubscribed by 61 percent.
Money market analyst James Chikavu Nyirenda, who is also chief executive officer at Blantyre-based Alliance Capital Limited, thinks investors want to “play safer by going midwayâ€.
“They don’t want to invest in the short term because they are unsure of the direction of the economy. Investors want to cover their positions by going midway,†he said. Nyirenda added that this could be a reaction to the RBM move to the uncollateralised window borrowing rate of 23.5 percent.
Nyirenda said: “Investors want to get to both worlds†by investing in the midterm.
He observed that RBM may have reacted seeing that interest rates were going out of hand, but said indications are that they would stabilise in the short to medium term.
But he said if the RBM is implementing the inflation targeting method, the bank rate—the rate at which commercial banks borrow from central bank—now at 21 percent, may go up.
Investment advisory firm, Nico Asset Managers, agrees investors are comfortable to invest in the medium term.
“This could be an indication that the market is now moving towards medium term investments. The highest rejection was on the 364 days tenor which recorded a rejection rate of 68 percent,†says a Nico Asset Managers weekly report.
The investment and advisory firm believes authorities remain eager for long term borrowing as the 364 days TB accounted for 44 percent of the total amount announced.
“The high rejection rate on the 364 days Treasury Bill is because of the high interest rates applied for by investors,†notes the firm.
Inflation targeting method, introduced in April this year, entails that the bank rate should be in tune with the prevailing inflation figures.
The National Statistical Office (NSO) has put the August inflation rate at 25.5 percent, a 3.8 percentage points increase from 21.7 percent the month before.
In the week, authorities raised K1.4 billion (about $4.7m) on the TBs market against an announced K1.8 billion (about $6m) with total applications recorded at K2.5 billion (about $8.4m), representing an over subscription of 43 percent and a rejection rate of 46 percent.
