With over two yards of Kwacha liquidity into Monday 23 December, central banks implementation date of the new 9% cash reserve requirement, purchasing power in Thursday 20 December government security sale was anemic as market players hedge liquidity positions ahead of new statutory reserve ratio. With K1.7 billion into yesterday’s treasury bill auction, the Bank of Zambia (BOZ) mopped the entire K279 million appetite recorded in bids.
Most banks shied away from participation as they preserved their liquidity ahead of the 23 December effective date for the recently statutory reserve requirement to 9% from 5% with daily compliance going forward. It is anticipated that about K1.6 billion will be mopped from circulation next Monday, a trader in Lusaka advised.
The Kwacha demand curve was unchanged across the entire spectrum with 1yr still prices at 27.5%. Secondary market trading is currently showing a higher yield on the 1yr of 500bps above the primary curve, an opportunity for mark to market gains for speculators.
The copper currency has drawn a line in the sand stabilizing to levels of 14.45 for a unit of dollar after the central bank reigned in a rout through a 400bps upward adjustment of the cash reserving requirement on 09 December.
Zambia has one more treasury sale to year end with K1.1billion on offer of fixed income assets whose purchases could be similarly impacted by the market liquidity position post 23 December.
The Kwacha Arbitrageur
