Bank of Zambia recorded a weak Treasury bill sale at auction 13 of 2014. The auction received bid worth K87.7m with the 364 day t/bill accounting for 85% of the total amount bid. The central bank allocated the full K87.7m:
Yields on the 91, 273 and 364 days t/bills spiked to 9.5%, 17.5% and 20%, respectively. This comes after a strong auction two weeks ago which raised the full amount on offer, anchored by over-subscription in 273 and 364 days t/bills. The auction also saw stronger demand from foreign buyers in stark contrast to the latest auction which has encapsulated the central banks recent drive to mop up excess liquidity in the market.
Recap of liquidity tightening measures
Bank of Zambia increased the policy rate, reserve ratio and Overnight Lending Facility (OLF) to 12%, 14% and 22%, respectively, in the first half of this year. The measures were taken to combat depreciation of the Kwacha in addition to the subsequent inflationary effects it was likely to bring about. This has also led to an increase in commercial bank lending rates to a maximum of 28% (45.9% for micro-finance lenders). The monetary policy tightening measures have also led to a dip in commercial bank participation in t/bill auctions.
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *