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| Money market rates go higher |
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by
Ayam Maeresa, 18 March 2003
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Financial market rates are going higher because government has increased its borrowing appetite in desperation to raise finances to meet the Treasury’s revenue shortfalls, financial experts have said.
The Treasury has gone on dry stomach at most times since international donors froze their aid two years ago in a bid to force government to fine-tune its high spending pattern.
“The money market registered a general increase in yield rates following the increased need to float government paper with a view to meet treasury’s perpetual revenue shortfalls,” said Loita Investment Bank in its fortnight market analysis report released on Monday.
The bank said the Treasury, after failing to raise K800 million in the past four TB auctions last month, increased the amount this month to K1 billion. Yesterday government said it intends to raise K1.5 billion at the next auction to held on Friday.
Loita said the yield rate for the 91 days tenor went up to 37.25 percent from 37.19 recorded during the auction of February 28, before dropping to 37.14 percent on the last auction last Friday.
Both the 182 and 273 days tenors last Friday saw an increase in yields to 38.12 percent from 38.07 and 38.17 percent from 38.11 respectively.
Said Loita: “Yields for RBM bills also remained high with those of the 91 days maintaining its upward trend.”
The National Bank of Malawi said two weeks ago that hopes for a lower price of borrowing money from commercial banks are fading as shortages in the treasury bill (TB) market will push government to raise interest rates to attract more bidders, a commercial bank has said.
Caught up in an aid crisis, worsened by a two-year economic recession that has crippled business and affected domestic revenue, government has resorted to borrowing from the public to finance its operations and maturing debts.
“The treasury bill auction has failed to raise the now increased amount of K800 million per week, signalling [in spite of the inflation rate] that on the principle of demand and supply alone, interest rates have to go up,” said the bank.
The bank rate—the rate at which the Reserve Bank of Malawi (RBM) lends out to commercial banks—is at 40 percent, which economic analysts say is too high for private sector players seeking finances. Interest rates in the financial market are hovering between 40 percent and 45 percent.
The bank said this state of affairs is likely to worsen further if consideration is given to the usual pre-election expenditures and the sizeable amount of accumulated arrears to suppliers.
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