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Golden Sibanda Senior Business Reporter

The US dollar savings bond, announced by the Reserve Bank of Zimbabwe (RBZ) in the 2019 Mid-Term Monetary Policy Review, is a noble idea, but risks finding little favour with investors without the central bank adjusting foreign exchange retention thresholds, financial analysts have warned.

Markets analysts feel that the US dollar-denominated savings bond is a welcome development, as it will improve the variety of long-term fixed income securities within the market by augmenting the Treasury Bills market.

This comes after the central bank introduced a local currency savings bond back in 2017, then under multi-currency, before converting all monetary balances into local currency amid a dollar crunch in February this year.

Apart from potential low uptake, analysts also expect the introduction of the bond to exert pressure on banks holding US dollar deposits to increase interest rates on (US) dollar holdings to match the RBZ’s new savings bond.

Presenting the Monetary Policy Review Statement on Friday last week, RBZ Governor Dr John Mangudya, said the US dollar denominated savings bond, with interest rate of 7,5 percent, was targeted at individuals and corporates  that hold nostro foreign currency accounts (FCAs).

The central bank said that the RBZ savings bond was aimed at encouraging a culture of saving and promoting a reasonable return on FCA nostro account deposits held by both individuals and corporate entities.

“Attempting to enhance foreign currency reserves, the RBZ introduced a USD-denominated savings bond, alongside the (Zim dollar) savings bond, with an interest rate of 7,5 percent per annum and a minimum tenure of a year,” said IH Securities commenting on the RBZ’s 2019 midterm policy.

But with retention thresholds remaining unchanged, the analysts contend fewer investors may find the urge and latitude to commit reasonable US dollar amounts to the savings bond due to tight liquidity situation.

As declared by RBZ, IH Securities said the thinking behind introduction of the savings bond was to promote a savings culture and provide reasonable return on FCA nostro deposits and US dollar cash held by firms.

The new savings bond is tax exempt, in line with the Government of Zimbabwe policy, and is acceptable as collateral for overnight lending by the central bank.

“Whilst we anticipate muted appetite to take on USD exposure to the government, to mitigate against a potential migration in US dollar deposits, commercial banks may need to increase their interest rates to match those of the USD-denominated savings bond,” IH Securities said on Tuesday.

IH said it anticipated low uptake of the bond without the readjustment of retention ratios of the exporting companies with retained forex held by corporates are seen as insufficient to cover working capital and capex, let alone investment.

Manufacturers retain 80 percent of their forex earnings, large and small scale gold miners  55 percent, other minerals 50 percent, tobacco and cotton merchants 100 percent, agriculture and horticulture 80 percent and transport and other services are allowed to hold on to 80 percent.

However, this does not seem viable for the banks as generating a real return of 7,5 percent on FCA deposits will be challenging in the current economic environment.