Malawi’s money market on upward spiral

Interest rates on Treasury Bills (T-bills) last week rose on two tenors, but dropped on the 91 days. This is reflecting investors’ appetite for mid to long-term investment despite being below inflation, analysts have said.

As of September 2012, inflation stood at 28.3 percent, according to the National Statistical Office (NSO).

Analysts, however, say the money market is fast becoming an attractive avenue for investors owing to its lucrative rates, making investors flee the now less attractive Malawi Stock Exchange (MSE).

Since the Reserve Bank of Malawi (RBM) hiked the bank rate—the rate at which commercial banks borrow from the central bank—to 21 percent, money market rates have been on the upward spiral.

The rising rates on the money market have hit hard the shares market which has seen performance being subdued over the past months.

In the auction held last week, according to RBM figures, interest rates increased on 182-day and 364-day tenors, but slumped on 91-day tenor.

Rates on 91-day tenor dropped marginally to 20 percent from 20.6 percent the week before, according to market statistics.

The rates on 182-day T-bill, which was oversubscribed by 43.5 percent, went up to 23.31 percent from the previous week’s 20 percent and the 364 days ticked up to 26.11 percent from 25.14 percent.

In the week, authorities raised K1.69 million against an announced amount of K1.95 million.

On the overall, this represents an undersubscription of 13.2 percent and a zero rejection rate.

Malawi’s auction for T-bills—a paperless short-term borrowing instrument issued by RBM—is held every week to raise funds to finance maturing government debt.

In October, T-bill rates increased on the 91 and 364-day tenors, but decreased on the 182-day tenor.

The 91-day average yield stood at 19.94 percent from 18.65 percent, the 182-day average yield stood at 21.68 percent from 22.05 percent, and the 364-day average yield stood at 24.72 percent from 23.32 percent in the previous month, according to RBM figures.

In the month, total applications stood at K6.4 billion with the 182-day paper accounting for the highest subscription rate of 46 percent followed by the 364-day paper with 25 percent and the 91-day paper at 29 percent.

However, the authorities only allotted K5.8 billion resulting in a rejection rate of 8 percent, while the 364-day paper sustained the highest rejection rate of 75 percent of total applications followed by the 182-day paper with a 38 percent rejection rate. The 91-day paper recorded a zero rejection rate.

Money market analyst James Chikavu Nyirenda, who is also chief executive officer at Blantyre-based Alliance Capital Limited, earlier observed that investors want to “play safer by going midway”.

“Investors want to get to both worlds,” he said, adding this could be in reaction to RBM moves to move the uncollateralised window borrowing rate to 23.5 percent.