Money market yields to remain strained

HARARE - Zimbabwe’s money markets could continue to under-perform going forward as authorities keep a tight leash on interest rates.

Due to sub-inflation interest rates, money market assets in the country have generally lost value over time.

Just last week, the Reserve Bank of Zimbabwe (RBZ) announced that it was maintaining the bank policy and medium-term lending rates at 35 and 25 percent, respectively.

The bank policy rate currently stands at 35 percent, after it more than doubled from 15 percent in October 2019.

The policy rate or overnight accommodation rate had earlier been increased from 15 percent to 50 percent in June and 70 percent in October 2019, before the rate was cut down to 35 percent.

The interest rate (amount of interest due per period, as a proportion of the amount lent, deposited or borrowed) is a critical economic component insofar as it has an impact - either positive or negative - on the cost of borrowing and return on savings.

It is also significant with regard to the total return on numerous investments.

But with latest official statistics showing that the country’s annual inflation closed at 401.66 percent in November 2020, it renders yields from money market instruments almost insignificant.

This also applies to Government-issued Treasury Bills ( TBs), whose average interest rate has been below 20 cent.

In a note on the December 2020 performance of its money market unit trust Old Mutual cautioned that money growth could push interest rates lower in the new year.

“Monetary policy was relatively accommodative during the month ended 31 December 2020.

In context, reserve money balances grew by a noteworthy 24.3 percent during the week ended December 18, 2020. per