Maravi

BoZ cuts down open market operations

BoZ cuts down open market operations
Written by Chiwoyu Sinyangwe
Saturday, December 27, 2008 1:28:27 PM

THE Bank of Zambia (BoZ) has in the last one month cut down on its Open Market Operations, the Standard Chartered Bank has revealed.
The Open Market Operations is a window, which is a channel BoZ uses to control money supply in the market.

However, the bank says BoZ had been forced to take the decision due to lack of appetite for government securities caused by lack of confidence in the financial markets.

According to Standard Chartered Bank, previously, BoZ’s objective was to control inflation but with the lack of appetite by investors in treasury bills and government bonds they have dropped the amounts that were being offered on the Open Market Operations.

“Previously, BoZ would mop up overnight liquidity even as high as K70 billion but has since stopped offering this tenor. All the other tenors have been more than halved and as a result, we have seen a significant cut in interest rates on the short end of the curve. Overnight rates had peaked to highs of 16 per cent last month and are now down to 11.5 per cent,” stated the market update.

And Standard Chartered Bank has stated that the continued higher inflation rates in the country and the persistent depreciation of kwacha against major convertible currencies was being caused by very high kwacha liquidity in the market.

“Accessibility to kwacha is currently very high, leading to fewer players needing to convert United States dollar to meet their local obligations. This excess liquidity has further enhanced kwacha’s weakness and the United States dollar strength. Further, the excess liquidity has also led to higher inflation rates currently sitting at 15.3 per cent,” Standard Chartered Bank noted.

Meanwhile, the kwacha has continued to hold around K4, 830 and K4, 850 characterised by mild interbank and corporate activity.

“K4, 900 clearly is an important level for the Central Bank as they are now intervening timely and consistently in the market. Today we expect a fairly quiet day trading in the range of 4800-4900,” stated Standard Chartered Bank.

Labels: BOZ, INFLATION, OPEN MARKET OPERATIONS, STANCHART

posted by MrK @ 1:29 PM