adminof money market instruments.
This comes after Finance Minister Tendai Biti, recently presented the 2012 national budget, which did not indicate any plans by the authorities to issue money market instruments.
The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend, and the core of the money market consists of interbank lending.
Anticipations were that the Government would soon issue a number of money market instruments that would re-ignite local interbank activity, which has been depressed since the introduction of the multi-currency system in 2009.
ZB Bank head of group economics and strategy Mr Joseph Mverecha said the Government could initially take a speculative approach that would, at least, give the market some direction.
“The budget is silent on issuance of money market instruments that would assist the banking sector in re-aligning portfolio mix and to kick-start the interbank market. The Government does not have to issue a large amount – even a national amount of US$10 million may be sufficient to guide the market on the interest rate structure that it deems consistent with the current fundamentals,” he said.
The non-issuance of money market instruments is part of the broader strategy by the Government at exercising fiscal prudence, what Minister Biti termed “avoiding fiscal sclerosis of unbudgeted expenditures”.
The cash budgeting strategy is largely viewed as a means to entrench macro-economic stability and confidence.
However, Mr Mverecha contends that issuing money market instruments is not tantamount to fiscal indiscipline in view of their perceived benefits.
“The Government is mindful of its cash budgeting framework, but issuing Treasury bills is not inconsistent with cash budgeting – only front loading certain expenditures, which can be appropriated on an ongoing basis,” he said.
Trading in the money markets typically involves Treasury bills, commercial paper, and short-lived mortgage and asset-backed securities among other instruments, and can provide liquidity funding for the financial system. The local interbank market could, however, get impetus from the proposed US$100 million re-capitalisation of the Reserve Bank of Zimbabwe’s lender of last resort function,
although the fund’s yet-to-be-defined operational modalities may still be a point of concern.
“The allocation of US$100 million for the RBZ lender of last resort function is an important step forward, but the real issue has to do with the terms and conditions for accessing the facility.
“The US$7 million allocated last year has not been accessed, because of the terms.
“If title deeds of immovable property still remain a requirement for intra-day access, then the allocation could be many times higher, but utilisation will still be low or non-existent,” said Mr Mverecha.
Online Reporter