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Most commercial banks are reported to have been cautious about participating in government paper, given the liquidity outflow expected after the cash reserve ratio was affected on Monday.
The Bank of Zambia raised its benchmark interest rate by 100 basis points (bps) to 11 percent on Wednesday November 22, 2023, a day after announcing a 250-bps upward adjustment to the cash reserve ratio to 17 percent.
While these sterilisation measures were taken to instil macroeconomic and price stability, the Kwacha Arbitrageur Magazine indicated on Monday that they were expected to raise the cost of finance which could impact private sector growth in the medium term.
On participating in government paper, the Kwacha Arbitrageur indicated that most commercial banks seemed cautious about participating, given the liquidity outflow expected when the cash reserve ratio was affected on Monday this week.
“As expected, post a cash reserve hike, bids were K500 million lower than the K2.6 billion of assets on offer with K1.6 billion of that appetite fully absorbed at cost in an undersubscribed debt sale,” it stated.
Kwacha Arbitrageur, however, stated that three-year Kwacha bond yields rose 100 basis points to 22 percent held in an ultimate fixed income sale of the 2023 held on Friday, amidst monetary tightening and debt restructure standoff risks.
Other tenors with curve movements higher were the five- and 15-year tenors which rose 50 and 45 bps to 22.5 percent and 26.95 percent respectively.
Markets were reported to remain anxious about whether the tightening would arrest the currency slide.
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