One of the positive autopsy effects of the sentiment boost in Africa’s copper producer, Zambia, after the electoral vote that saw the ascension of Hakainde Hichilema to power was the bond yield rally in the post election bump debt sale of August, 27. Bank of Zambia sold two and half yards of paper in local currency terms (K2.5 billion) from an appetite of K12.5 billion ($757 million circa) in bids that saw yields compress 606 basis points across the Kwacha demand curve on average.
Term funding in the copper producer is determined by the government security curve whose flattening last Friday signaled a repricing of fresh credit in the money markets. Credit costs have for a long time remained elevated as pricing does factor sovereign and liquidity risk constraints.
Friday August 27 outcome signaled a decline in interest rates for new credit going forward which is forecast to stimulate growth of the economy. This however will on the contrary result in margin squeeze for commercial banks.
INFLATION STILL ELEVATED BUT SUBSIDING
Zambias August inflation ebbed 0.2% to 24.4% as reported by the Zambia Statistics Agency – ZSA as non-food prices marginally ebbed. This has however narrowed the premiums for taking sovereign risk for local currency purchasing power.
The rate decision committee (MPC) will decide monetary policy the week starting the August 30 and will announce the outcome on September 01 for which market players anticipate some form of monetary policy tightening at reserve level to support a sustained currency rally while the benchmark interest rate is expected unchanged at 8.5%.
The Kwacha Arbitrageur