Money market<\/strong><\/p>\nThe National Budget gave indications of downside risk to existing interest rates on the local money market underpinned by an anticipated improvement in liquidity and general market resistance for high borrowing rates on the economy.<\/p>\n
Having initially forecast total revenues of US$3,4 billion for the 2012 fiscal year, the minister adjusted the expected receipts for the year to US$4 billion in anticipation of an additional US$600 million from diamond exports.<\/p>\n
His revenue projection looks realistic given reports that one of the diamond mining companies, Anjin, has been given permission to export its more than two million carat stockpile of diamonds by the Kimberley Process Certification Scheme.<\/p>\n
The forecast increased fiscal space of US$4 billion is based on a general upward movement in money supply growth springing from improved macro-economic fundamentals.<\/p>\n
The projected deposit base of at least US$3,8 billion for 2012, despite being very conservative as it represents a 15,2 percent rise from a September 2011 deposit base of US$3,3 billion, testifies to the expected expansion in money supply in the economy.<\/p>\n
The expected improvement in liquidity conditions due to the boost in export receipts from diamond sales and the general improvement in economic performance should give downward pressure in interest rates on the local money market.<\/p>\n
The time lag between sales of the diamond exports and actual receipt of funds earned from the process should result in meaningful liquidity being realised in the second quarter of 2012.<\/p>\n
On the local money market, reluctance by borrowers to introduce expensive capital on their balance sheets, as well as policy makers desire to see a depressed interest rate environment should put a further downward pressure to current interest rates.<\/p>\n
The recent Agricultural Marketing Authority (AMA) bills tender that saw a weighted average rate of 10,67 percent despite the highest bid rate being quoted at 25 percent and the approximate average bid rate being indicated at 16,75 per is a clear testimony of borrowers’ hesitation to pick up expensive debt that puts pressure on their financial stability.<\/p>\n
Furthermore, Biti indicated that he would co-ordinate financial support to the tune of US$60 million for the broader industrial revival facilities whose total interest rate cost to borrowers should be 10 percent.<\/p>\n
He further disclosed that negotiations are currently underway with the banking sector to mobilise US$100 million through bills to support the agriculture sector. The funds would be availed at interest rates of around 10 percent, down from rates around 15 percent for NSSA funds currently being channelled to the productive sectors.<\/p>\n
Whilst the availed credit by the fiscal authorities at around the 10 percent level is inadequate to be accessed by all borrowers on the economy, the proposed lending rates for the facilities are suggestive of lower lending rates that policymakers desire to see prevailing on the economy.<\/p>\n
The resuscitation of the lender-of-last-resort function through availing of a proposed US$100 million facility should reduce the high level of systemic risk on the local financial sector.<\/p>\n
Banks that have previously maintained high liquidity levels in order to safeguard themselves against high default risk on the sector that was aggravated by non availability of lender-of-last-resort are expected to increase their loan-to-deposit ratios in a development that should culminate in improved credit availability on the economy.<\/p>\n
A possible rejuvenation of interbank market activity emanating from revival of the lender-of-last-resort function will enhance intermediary process on the local money market and promote efficient distribution of available liquidity thereby evening out interest rates quoted across the economy.<\/p>\n
Zimbabwe Stock Exchange<\/strong><\/p>\nThe expected downward movement in interest rates due to the improvement in liquidity on the back of increased fiscal space (diamonds and tax revenues) and the general productive sector-led economic growth emanating from, among other issues, the growth promoting government revenue measures, is positive news for the equities market.<\/p>\n
On the downside, before the onset of the positive impact of the budget which we think should be in the second quarter of 2012, the market should remain dogged by the current indigenisation and political concerns.<\/p>\n
This has been worsened by the fact that the budget did not shed light on the exact implementation time lines of the programme so that investors can have a clear picture of what to expect if they are to commit their funds in the various sectors of the economy.<\/p>\n
The fact that the minister did not provide for elections, save for referendum, left investors more worried about the political situation in the outlook period.<\/p>\n
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