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In his mid-term monetary policy statement, the Reserve Bank of Zimbabwe Governor Dr Gideon Gono announced that monetary and fiscal authorities were working towards enforcing the reduction of interest rates on the local money market.
Of late, investment rates on the local money market for the 30- to 90-day period retreated to the 10 to 14 percent range from the previous peak levels of between 15 and 18 percent.
Lending rates also softened to between 12 and 15 percent levels per annum from previous averages of between 18 and 25 percent.
Commenting on the development, an economic analyst Mr Trust Chikohora said: “This could largely be related to pressure being exerted on the banking sector by the monetary and fiscal authorities to lower the lending rates and bring investment rates closer to the lending rates in order to encourage savings.”
He said this would also lessen the interest burden on borrowers and encourage investment and more economic activity.
“Thus, it is a welcome development and we hope that interest rates will continue to come down going into the future in order to facilitate economic development,” he said.
Previously, concerns have been raised by the business community that high interest rates banks were charging borrowers derailed efforts to revitalise operations by industry as companies could not afford “exorbitant” rates on borrowing.
An economist with a leading financial institution who preferred not to be named said: “I think the softening of interest rates is a direct response to the moral suasion by Government to reduce interest rates on the local money market. The Government has been vocal over high interest rates that banks were charging.
“It could also be because of a marginal increase in liquidity on the market. Previously, because there was tight liquidity in the economy it pushed interest rates on the high side.”
The economist said at one point some financial institutions had their banking licences cancelled leading to investors to withdraw their funds on the money market.
“Because the dust over that issue (cancellation of banking licences) has settled, investors now have the confidence to put their money on the market resulting in improved liquidity forcing interest rates to go down,” said the economist.
However, in a commentary AfrAsia Kingdom Zimbabwe attributed the softening of interest rates to the rejection of all treasury bills bids by the central bank.
“Interest rates on the local money market softened significantly following the rejection of all Treasury Bills bids by the central bank. On its first attempt at the Treasury Bill tender on 4 October 2012, the RBZ came to the market looking to raise $15 million for 91 days. Total bids amounted to $7,7 million with bids ranging between 5,5 percent and 15 percent per annum.
“In a sign that shows that the average rate was high for the central bank’s liking all bids were rejected,” said the financial institution.
The Treasury Bills were being introduced for the first time since the adoption of the multi-currency system in 2009.
The Treasury Bills tenders were open to financial institutions on Real Time Gross Settlement and with no option to buy back.
Only banks with adequate liquidity were required to tender since the paper cannot be used to borrow from the RBZ whose lender-of-last-resort function remains inactive.
Online Reporter