All deposit classes now indexed to treasury bill yields, say Mthuli Ncube

 All deposit classes now indexed to treasury bill yields, say Mthuli Ncube
Published: 13 March 2020
Government has gazetted a statutory instrument which directs that all classes of deposits in the banking system, should be indexed to treasury bill yields as part of efforts to promote fair compensation of depositors and savers in the economy but more importantly to allow the Zimbabwe dollar deposits to steady value, which will translate to relative stability on the foreign exchange market.
The Finance ministry believes that the structure will promote the re-introduction of an invigorated interbank money market system so that banks can effectively place funds among themselves, which will lead to further price discovery and stabilization of interest rates as well as exchange rates.  The interbank market will be underpinned by TBs and other risk-free instruments as collateral. As the market develops and depends, other designated financial instruments, such as trade backed bills and other fine acceptances issued by blue chip companies can be approved as part of the acceptable collateral basket to support deposit taking activities.
According to Statutory Instrument 65A of 2020, the Ministry of Finance and Economic Development through the directed that on call, Demand and Savings Deposits held for tenors greater than one day but less than 30 days, including amounts held in mobile wallets and memorandum /trust accounts underwriting Mobile Money Balances will attract interest of at least 50% of the prevailing TB yields on bills of equivalent tenor. Savings and Fixed Deposits of tenors greater than 30 days but less than six months should pay interest of at least 75% of the prevailing TB yields on bills of equivalent tenor.
Savings and Fixed term deposits held for tenors greater than 6months should attract interest of at least 90% of the prevailing TB yields on bills of equivalent tenor.
Treasury believes that mixed signals associated with the current interest rate structure undermined the efficacy of policy measures enunciated by Government, through the unintended generation of adverse expectations and the resultant lack of confidence. This comes after the local dollar has rapidly lost value against the USD while the high inflation currently prevailing has resulted in further value loss.
And while the use of the local dollar was accepted only because of legislation, there continues to be doubt about it as a store of value. The move by Treasury will ensure that the risks of holding local dollars are ameliorated even if its only just through compensation on savings. Indexing of the savings rate to prevailing TB rates will see an increase in the proportion of long term savings deposits in the banking sector, while a concomitant relaxation of the interest rate framework will most likely enhance financial inclusion by allowing banks to price credit products according to the risk profile of the borrowers.
Analysts believe that a more deterministic framework that is based on an optimum interest rate policy that complements the other policy measures that are supportive of the new currency that have been put in place.  If the interest rate policy remains inconsistent with the currency policy for example, disequilibrium will surely continue to haunt the economy.

Ultimately though,  the meaningful attraction of foreign direct investment, improvement of export capabilities and the shedding off, of import dependence remain integral. This coupled with an effective debt resolution strategy would unlock external credit lines that are critical for the re-tooling of industry. These key ingredients will rejuvenate aggregate demand in the domestic economy, improve financial intermediation and monetary stabilisation and spur inflation to levels that promote sustained economic growth and development.
- finx
Tags: Deposits,


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