With mid-month taxes falling due on the 10 April, corporations focused on funding their taxation obligations which eroded purchasing power in Thursday 09 April treasury bill auction. With appetite of only about K222.74million in bids of the one yard of assets of offer, the Bank of Zambia was only able to absorb K186.72million in cash terms translating to 1.19 in bid-cover. This subscription haircut widens government funding needs at a time when COVID19 has distorted budgetary and fiscal needs.
Yields stood pat with repricing risks still elevated as the Kwacha demand curve reflects increased government expenditure. One year money remained unchanged at 29.25% and was the most preferred tenor housing K107.8million of liquidity.
Currency rally. Despite mopping cash to the revenue authorities, dollar sales fueled increased demand for local currency that supported a Kwacha rally that saw the red metal currency reverse part of its loss streak. The copper currency has shaved excessive value year to date as part of an Emerging Market (EM) currency rout exacerbated by a strong dollar global environment as demand for safe haven assets rises in the Coronavirus disease pandemic era.
Feeble sentiment. Zambia’s reserves have declined significantly exposing the red metal producer to external shocks. Further, sentiment has waned given a weak credit rating outlook recently adjusted lower by Moody’s to negative from stable on a ‘CCC’ grading.
The central bank on 26 March revised it interbank foreign exchange market rules introducing a crawling ‘15 pip’ peg that would curb volatility which has been dubbed as retrogressive as it has potential to fuel further volatility and could be recipe for a currency black market.
The Kwacha rallied to 18.5 levels for a unit on dollar into Good Friday from an all time high of 19.15 earlier in the week.
The Kwacha Arbitrageur