Treasury bills (T-bills) rates—one of the determinants of commercial bank interest rates—fell on all tenors in August compared to the previous month, according to Nico Asset Managers.
The 2014 August report from the investment advisory firm shows that T-bills yield fell by an average 2.64 percent in August compared to the previous month. Year—on-year, the government securities fell by about 5.04 percent.
However, an analyst has said although investors are apparently losing out due to the lower yields, the trend is good news because it is reducing pressure on lending rates which are often benchmarked against the securities.
The monthly report shows that the 91-days average yield decreased to 17.7 percent in August from 19.82 percent the previous month while the 182-days average yield decreased to 18.83 percent from 22.14 percent. The 364-days average yield also decreased to 19.8 percent from 22.30 percent in July.
As part of the prudent monetary policy, Reserve Bank of Malawi (RBM) scrapped off the bank rate and replaced it with a policy rate which is now at 24.5 percent. The central bank has been defending the policy rate to effectively control interest rates.
Recently, RBM put a cap on T-bills yields at 20.5 percent to defend its policy rate currently at 22.5 percent to guide interest rates by rejecting securities bids with yields above the limit.
RBM spokesperson Mbane Ngwira said the central bank’s policy rate is effectively a guide to the market and by defending it interest rates will fall or rise along with changes to the rate.
Analysts have often blamed rising T-bills yields on rising interest rates, prompting lending rates to rise and consequently putting pressure on inflation—the general rise in the prices of goods and services.
Faced with mounting domestic debt of K340 billion, government has promised it will not borrow heavily from the local market although it is struggling with a wide fiscal deficit in the 2014/15 fiscal year.
Minister of Finance, Economic Planning and Development Goodall Gondwe has indicated it will borrow K15 billion from the domestic market.
Money market report show that August, total applications for T-bills stood at K37.74 billion, but K32 billion was allotted resulting in a 15 percent rejection rate. Maturing T-bills bills stood at K25.9 billion, resulting in a net withdrawal of K6.11 billion.