Purchasing power has continued to elude Kwacha fixed income markets in Africa’s second largest copper producer. This comes in the wake of a recent change in pension fund policy. Authorities in the Southern African nation approved legislation that allows for a 20% cash in on retirement savings. Of the K2.6 billion of assets on offer, the Bank of Zambia only raised K390.6 million, a steep undersubscription amidst market liquidity constraints posed by the pension legislation change. This outcome is a replay of the April bond sale that sold only K636 million worth of paper as commercial banks shied away from bidding to hedge against a potential liquidity crunch that would otherwise weigh their ability to meet payment obligations. The state pension funds fixed deposit stock housed with commercial banks in March was K14.3 billion of which payouts have exceeded K5.7 billion in the last one and half months as requisitions soar.
Bids in Friday May 26 sale totaled K644.1 million with 58.0% concentrated in the longer of the Kwacha demand curve. The central bank continues to reject cheeky bids in relentless efforts to counter an elevated curve as sovereign risk premiums skew towards a widening trajectory. Markets continue to seek clues concerning debt restructure progress which was expected at the May creditor session a few weeks after China eased its stance on multilateral development banks sharing in haircut losses.
The red metal producer is on the cusp of its second International Monetary Fund extended credit facility disbursement of $188 million but only when creditors provide assurances. China has been cited the reason for delayed restructure talks. Growing tensions between the US and China continue to reflect the viscosity of geopolitical tension that market analysts believe could impact debt reorganization discussions.
Increased ambiguity continues to wear out markets with pressure expected to mount on the foreign exchange markets. The Bank of Zambia has hiked its benchmark interest rate 50 basis points this year to 9.5% while its cash reserve ratio was tightened 250 bps to 11.5% in sterilization efforts to tame price pressures.
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Yields were unchanged across the curve spectrum. However the move upwards from 15% to 16% of the 364 Day T-Bill is signalling upwards pressure on the interest market of Zambia put continued pressure for these under subscriptions to eventually push rates upwards.
The Kwacha Arbitrageur