Zimbabwe: RBZ Rejects $50m TBs

The Reserve Bank of Zimbabwe (RBZ) last week rejected all $50 million worth of bids for the 364-day Treasury Bills (TBs) the apex bank had floated in order to raise funding to cover Government’s expenditure needs arising from the coronavirus.

Although the bank managed to raise only $70 million, far short of the amount it is targeting, analysts believe the monetary authorities will still be able to mobilise the required funds because appetite in the market for the securities was high.

The central bank had sought to raise $500 million through 364 and 270-day TBs, but turned down all bids for the longer dated paper after all the bidders quoted a “steep” interest rate of 50 percent.

In an effort to discourage borrowing for speculative reasons, the central bank hiked the policy rate from 15 percent to 35 percent, apparently the interest rate threshold where it believes rates should be.

The bank policy rate is a benchmark rate at which banks without adequate resources to meet daily obligations can borrow in the market over a short period to cover immediate funding gaps and obligations.

The recent policy rate cut — after the bank twice this year reduced the benchmark rate — which stood at 50 percent in September last year, follows the introduction of the foreign exchange auction system two weeks ago, which has had a flying start.

On the other hand, the 270-day instrument attracted the highest interest of 45 percent and lowest rate of 18 percent, while bids worth $70 million were successfully allotted.

Bids totalled $50 million for the 364-day paper and $120 million for the shorter-term paper with the average interest rate coming at 19.14 percent.

Eddie Cross, a member of the RBZ monetary policy said, as an agent of the Government, they were confident that they will successfully raise the amount that the Government needs for its Covid-19 obligations.

“If any bids were rejected, it has to be about the rate, but I am confident we will be able to raise the money that the Government needs; there is a lot of appetite out there for the Treasury Bills,” he said.

The TBs are part of Open Market Operations (OMO) conducted by the central bank, which refers to a practice when the central bank buys and sells Treasury securities on the open market in order to regulate the supply of money that is on reserve in the banks.

The bank has recently taken a number of measures to reduce the amount of money within the market to protect the Zimbabwe dollar, which has received significant battering due to depreciation since its reintroduction and floating early last year.

Part of broad interventions the bank has also instituted over the past few weeks to defend the local unit has been restrictions around the value threshold of transactions conducted on agent mobile money and banking platforms to limit flow of liquidity for trading of currency and speculation on parallel markets.

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