CREDIT BOOST IN SIGHT

Government securities (bond) curve has climbed down by an average of 825 basis points across the fixed income spectrum

CREDITgrowth is expected to be boosted by the current flattening Kwacha demand curve.

One positive externality of the recent Kwacha bond rally excitement, is that the yield curve has significantly flattened over the last one month and credit markets are already pricing in lower cost of lending.

Government securities (bond) curve has climbed down by an average of 825 basis points (bps) across the fixed income spectrum as both offshores and onshore players do tap into lucrative yields given subsiding political risks and widening confidence, according to the Kwacha Arbitrageur Magazine.

According to the Kwacha Arbitrageur, Government securities curve remained the proxy and benchmark for the cost of credit in the Zambian markets.

“Term funding is forecast to ebb significantly up to 900 -1,100 bps for 3 – 5 year on fresh money, a credit market repricing that will stimulate domestic credit to support the growth agenda for the nation.

“Credit costs have for a long time remained elevated as a reflection of deteriorated sovereign posture and overcrowding effects of government appetite for domestic funding, a strategy to curb excessive external debt growth by the Ministry of Finance,” it stated.

It also stated that other drivers of credit growth would include the recent currency appreciation giving a boost to import oriented businesses and forecast reforms in key sectors such as mining, agriculture, manufacturing and the Small and Medium Enterprises facilities.

“What Zambia is experiencing right now is subsiding political risks as risk appetite claws back into the economy poising Zambia for a rebound in economic performance,” the magazine stated.

The last Monetary Policy Committee communique for September 01, revealed that bond yields for second quarter of 2021 sagged to 31.3 percent from 33.7 percent whose forecast is now in the 20 percent’s to force lending rates lower in the fourth quarter of 2021.

The magazine explained that most of the hype around the attractiveness of Government paper was most being fuelled by the state of the global economy, after aggressive stimulus packages.

These, it stated, saw massive liquidity injections by central banks that sought to absorb pandemic induced credit risks.

“Excess global liquidity has found itself housed in emerging and frontier markets, Zambia inclusive.