Zambia’s central bank pierces own borrowing limit as one year money reprices to 29%

The Bank of Zambia in Thursdays 13 February, treasury bill sale sold K1.54billion worth of treasury bills in deeply oversubscribed auction which exceeded its 40% borrowing limit. The central bank reserves the right to fill up to 40% above the debt sale size of K950million, which translates to a maximum borrowing limit of ZMW1.33billion.

Increased appetite for short dated govie risk. Bids into the treasury sale were K1.88billion of which 81.6% appetite was absorbed representing a bid cover ratio of 162%. Fifty seven percent of the allocated amount was in the one year tenor while the 6m and 9m were the next sought for tenors.

Purchasing power representing market liquidity as measured by aggregate interbank current account balance into Thursday debt sale was slightly under K700million with maturities in excess of K800million falling due next week Monday 17 February.

Cost of funding reprices higher. Yields in the 6m and 1yr repriced 170 and 76 basis points higher respectively to 20.95% and 28.99% on the back of aggressive bids which the central bank could not reject to absorb the funding gaps left after four undersubscribed auctions (3 treasury bill and one bond offering).

Zambia will have its first rate decision meeting of the year next Monday 17 February at which it’s is expected that the central bank will keep rates on hold as it monitors risks to inflation in the quarter.

The Kwacha Arbitrageur