Appetite for Govt bonds, treasuries may be reversed by U.S decision on rates

ZAMBIA’S foreign appetite for Government paper such as treasury bills and bonds could be reversed once the United States Federal Reserve raises rates to contain the rising inflation.

The Zambian government paper has in the recent months witnessed a positive influx of appetite from foreign investors.

Inflation has become a big issue for the United States and this could only be controlled by raising interest rates which will in turn affect Zambia and other countries which have benefitted from the liquidity which was injected in the economies to support growth.

This is according to the Stanbic Bank Zambia Head of Global Markets, Victor Chileshe, at the 2022 Zambia Property forum which took place in Lusaka under the theme “A New Horizon.”

Mr Chileshe explained that the economy for the United States was now overheating as it reduced its Covid-19 restriction, thereby creating high inflation.

“Now that the economy is overheating as the world, the United States reduces its restriction. Inflation has become a big issue.

“And this is where when they raise rates, you are likely to see the impact here as Zambia has often benefited from the hot money, as we call it, when people come in and sell dollars to buy bonds,” he said.

Mr Chileshe said the raising of interest rates was likely to weigh down on investment decisions, thereby affecting countries such as Zambia.

He explained that investors would now have to decide whether to continue investing in emerging market economies or in the United States treasuries and get a proper return.

On the Sub Saharan countries, Mr Chileshe said the region had been a lot more resilient in terms of economic growth

“Sub Saharan Africa is seems to be a lot more resilient in terms of economic growth. And this can largely be attributed to the fact that we were not as hard hit by Covid-19 as most of these economies that we see in Europe and Asia with the Covid method,” he said.