Money market on downward spiral
Rates on the Treasury bills (T-Bills) for the 91 days, 182 days and 364 days tenors have for the past three months been on the decline, an indication that the government securities demand might be less than supply.
Analysts have since observed that the money market is fast becoming an attractive avenue for investment due to the lucrative rates that are on offer.
According to data provided by Nico Asset Managers, during the auction held last week, auctions for the 91 days, 182 days and 364 days tenors in which K1.74 billion was allotted against applications of K1.74 billion resulting in a nil rejection rate.
During the review period, the average rates for allotments were 21.94 percent for the 91 days, 21.99 percent for the 182 days and 23 percent for the 364 days tenors.
Open Market Operations (OMO), on the other hand, totalled K14.02 billion at an average rate of 21.8 percent whereas maturities for government securities were K10.89 billion, resulting in a net withdrawal of K4.87 billion.
In his State of the Nation Address, President Peter Mutharika, while
admitting that interest charges for domestic debt, which is characterised by short-term debt, remains high, said government is strengthening debt management practices through adherence to public debt policies and medium-term debt strategies.
The President said government intends to continue with reforms in the 2017/18 financial year to spur investment and economic growth and as well as reduce the deficit to levels below internationally acceptable thresholds (three percent of gross domestic product -GDP) to reduce pressure on domestic borrowing and interest rates.
In March this year, the central bank slashed the policy rate by two percentage points to 22 percent from 24 percent, in view of the disinflation process in the recent past and inflation outlook.
In reaction, commercial banks also lowered their base lending rates. Nonetheless, businesses and economists have said the country’s interest rates, at around 30 percent, are still high.
Commenting on the decline of the T-bills, a market analyst in an interview with Business News recently said the decline is positive as it may lead to a further fall in commercial bank rates.
The analyst noted that T-bills rates are positively correlated to commercial bank interest rates, which means that as the T-bills rates rise, so does commercial banks interest rates.
