Bank of Zambia Receives K567 M in Bids at T/bill Auction as Appetite Remains subdued

The central bank received bids worth K567 million and allocated K423 million at Treasury bill (T/bill) auction 12 of 2015, yesterday. K900 million worth of T/bills were up for sale.

The auction was 37% under-subscribed with 76% of total bids chasing the 364 days T/bill whose yield increased slightly to reach a 9-month high. The 273 days T/bill had a 3.5% spike in yield as the 90 and 182 days yields remained unchanged from the previous auction.

Monetary policy has remained tight with the Central Bank opting to keep the policy rate at 12.5% last month (as well as maintaining other tightening measures). This has helped contain inflation which has continued its downward trajectory to hit 6.9% in May. The Kwacha has also seen some strengthening recently after hitting an all-time low earlier this year. The currency has been trading between K7.21 to K7.31 to the US Dollar this week.

The fiscal side has been weak with Moody’s revising Zambia’s outlook to negative (B1 rating) and the Ministry of Finance projecting that the fiscal deficit looks likely to exceed 6% of GDP this year – eclipsing their 4.6% forecast. The Ministry will soon be implementing a revised budget which should include a combination of spending cuts and revenue-raising measures. They have already raised K571 million ($79 M) after selling a portion of their 87.5% stake in ZCCM Investment Holdings (LuSE: ZCCM-IH) which should go some way to plugging a projected K2.3 billion gap  caused by the reversal of the 2015 Mining Tax Regime.