adminSince the adoption of a multi-currency system in February 2009, Zimbabwe has been affected by liquidity crunch resulting in economic stagnation although the economy has posted positive economic growth trajectory in the past three years.
“The skewed distribution of the available liquidity on the market at any given time during the rest of the year would further work to maintain interest rates at their current levels, a development that should keep expected returns on the local money market relatively high.
“The year 2012 could be another memorable year for investors on the money market who endured forgettable periods of hyperinflation, which at its peak, rendered their hard earnings savings worthless within a day,” said Kingdom Financial Holdings Limited (KFHL) in a recent market commentary.
The financial institution said yields on the local fixed income securities market had remained comparatively high as demand for capital remains elevated relative to
supply with lending rates as high as 20 percent while investment rates were trading in the region of 12 percent to 15 percent per annum for 90 days.
Accompanied by moderate inflation levels stemming from price stability brought about by the multi-currency environment, yields on the local interest bearing market have been very competitive.
“Capital availability on the economy has been modest since the inception of the multi-currency regime and has impacted negatively on the performance of other investment markets, with the Zimbabwe Stock Exchange being a major victim.
“Total deposits on the economy are expected to end the year at around $4 billion, as money supply growth remains restricted by a host of factors.”
KFHL said although the liquidity situation had improved since the adoption of multi-currency, it was still way below the economic requirements.
It is envisaged that future improvement in market liquidity as a result of tobacco earnings would stabilise interest rates at their present levels during the rest of the year.
An economic commentator, Ms Chipo Warikandwa said: “Presently, fundamentals on the ground point to persistent increased demand for funding in the economy, a development that promotes interest rates to remain on the higher side.
“If the current liquidity crunch persists in the economy, local money market investors could be headed for a memorable year in the third-year running since the liberalisation of the economy.”
Online Reporter