The money market has started receiving funds destined for the administration of the oncoming harmonised elections, a move that is fuelling liquidity.

Kingdom Bank analysts hint furthermore, other quasi-fiscal expenditures are likely to assist in increasing money market liquidity thereby sustaining the current soft investment rates.

“Money market investors are advised to invest short given the uncertainty surrounding the post election period,” said the bank in a statement.

Zimbabwe is holding joint presidential and parliamentary elections on the 29th of March this year.

Finance Minister, Samuel Mubengegwi availed Z$209 trillion for this year’s elections in the People’s Budget announced in November 2007.

The bank analysts notes any changes in the current low interest rate regime to a higher interest rate one will severely harm money market portfolios whose assets have a longer duration.

“Also contributing to the easier liquidity conditions during the week were concessionary advances going towards various Economic Support Facilities like the Agricultural Mechanisation Program, civil servant salaries and other fiscal expenditure going towards entities like ZINWA and ZESA,” they say.

The main parties that are currently campaigning in the elections entail the Movement for Democratic Change (MDC) and ZANU PF.

All parties including independent presidential aspirant Simba Makoni have since bought and are currently acquiring and brand new vehicles for use in campaigns.

Excess liquidity conditions continue to characterise the money market with Friday the 29th of February recording a historical peak surplus of Z$525 trillion.

“With the RBZ having taken over the biggest slice of the lending market by advancing credit to various sectors of the economy, including quasi-government institutions, most lending institutions have been pushed to the peripheries of their mainstream business,” said Kingdom Bank.

“To worsen financial institutions’ plight, the available main borrower of their funds is the Government which is issuing a one-year Treasury bill with a rate of 340 percent per annum against an inflation rate 100580.2 percent recorded for January 2008. This instrument is obviously very unattractive as it is giving a negative real return of more than 100 percent.”

“Although the liquidity surpluses have removed the liquidity risk that affected banks during the month of January 2008, the excess funds are just not performing for the apparently desperate financial institutions,” concludes the bank.

According to the analysts, a development that is unusual of a Statutory Reserve payment day, the market closed in surplus to the tune of Z$133 trillion on Monday the 25th of February after opening with a surplus position of Z$267 trillion. This reflects the high level of liquidity that was prevalent on the market during the week. On Tuesday the 26th, the market closed Z$210 trillion long while a surplus position of Z$414 trillion was recorded on Wednesday the 27th. On Thursday the market closed with a surplus of Z$408 trillion whilst on Friday the 29th, a historic surplus position of Z$525 trillion was recorded as earlier noted.

Reflecting the continued excess liquidity conditions, investment rates continued depressed during the week under review with 7-14 day NCD rates being shown at below 50 percent with most financial institutions quoting nothing for the same. The 30, 60 and 90 day NCD rates averaged 100 percent, 200 percent and 250 percent, respectively whilst the inter-bank rate was quoted at rates below 50 percent. The one-year Treasury bill rate remained unchanged at 340 percent with a total support for the week adding up to Z$18.8 trillion.

One strategy that banks have adopted to deal with the non-performing excess liquidity is to draw bankers’ acceptances. For instance, banks were advancing 7-14 day BAs at rates below 150 percent whilst the 30 and 60 day BA rates averaged between 200-600 percent. Owing to the uncertainty regarding the longer-dated paper, 90-day BAs were are fetching rates as high as 800 percent.

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