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Business Reporter

A RESERVE Bank study into the interest rate regime in Zimbabwe has recommended the exclusion of banks from privately placed Treasury Bills to avoid pushing up interest rates.The study says private placement of TBs with non-banking institutions should target pension funds and insurance firms through preferential rates that do not distort the interest rate structure.

This comes as the high interest rate spread obtaining in the Zimbabwe continues to dampen economic recovery prospects, as private sector-led growth requires adequate liquidity support from the financial sector; at affordable prices.

Ninety day TBs had yielded 9,3 percent (effective) while 365 TBs returned 13 percent. Three to five year TBs had yields of only 7 percent. In addition, 365-day TBs with the same maturity were issued at different interest rates of 10 percent and 13 percent, thereby sending mixed signals to the market.

At a time when the RBZ’s role as the lender of last resort is dysfunctional due to the use of the multi-currency system, Government paper (TBs) has served as the de facto accommodation rate, a mechanism for defining interest rate direction.

Government has issued roughly $2 billion worth of TBs to finance various programmes or settle its liabilities since 2009.

“In essence, the obtaining high yields for short-dated paper have the potential to result in an unnecessarily high accommodation rate that may in turn result in banks further pushing lending rates to high levels,” the study by RBZ noted.

Lending rates quoted by banks have been very high, ranging between 6 and 25 percent with most banks quoting average lending rates of around 20 percent. The high lending rates have been a result of high premiums sustained by liquidity shortages that characterised the multi-currency regime.

The research also concluded that there is need for Government to come up with a sustainable medium-term borrowing strategy aimed at minimising the cost and risk of borrowing.