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Zim rejects bids for treasury bills

Oct 25 2012 09:54 Malcom Sharara, Fin24’s correspondent in Zimbabwe

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Harare -The Reserve Bank of Zimbabwe (RBZ) on Wednesday rejected all bids for US$15m in treasury bills for the second time in a row.
The bids were all rejected after they were labelled unfavourable by the central bank.

According to sources at the central bank, bids totalling $11.2m were received with banks asking for rates ranging from 5% to 14.5 % for the 91-day bills.
In the first tender held on October 4, the RBZ rejected bids totalling $7.7m after banks asked for rates of between 5.5 and 15%.

Market players believe the problem with the TBs is that they are illiquid as they cannot be tendered to the central bank for liquidity.

The reintroduction of treasury bills has been touted by economists as the missing link in the resuscitation of the interbank money market, as the TB rate is normally used as the benchmark reference rate in financial markets.

Unfortunately the bids from banks have not been favourable, with bankers arguing that the bills lack risk-free status because of the government’s inability to print money.

After the rejection of the first tender, commentators said the lack of interest shown by banks - especially foreign-owned institutions - was a slap in the face of fiscal and monetary authorities who have been against localisation of these institutions.

In an interview with The Herald after the rejection of the first tender, RBZ governor Dr Gideon Gono said the TBs were rejected because of the interest rates that were not consistent with extremely low risk factors attached to the government stock.
He added that the central bank was “disappointed by the double standards displayed by some of the market players who had been in the forefront of lobbying for the issuance of the paper, only to show their true colours at the critical moment of reckoning".
Said Gono: “Against such (a) background, both treasury and monetary authorities were united in our decision to reject the bids in their totality.

"We will be returning to the market soon with measures that will see both treasury and monetary authorities achieving earlier objectives, through a battery of other instruments, crafted to adequately deal with the market failures of the nature we all witnessed.”

It remains to be seen what action government will take to correct the situation.

 - Fin24


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