KALONDE NYATI, Lusaka
RELATIVELY stable Kwacha and the returned business confidence after the August 11 polls, among other factors, resulted in increased appetite for government securities by foreign investors, more than doubling to K6.6 billion in the final quarter of last year.
The total stock of government securities also rose to almost K33 billion in the same period.
Bank of Zambia (BoZ) governor Denny Kalyalya said unlike the third quarter of last year, in which only K2.9 billion was invested in securities by foreign investors, the final quarter witnessed increased appetite.
Dr Kalyalya said government bonds were the most attractive, accounting for K6.5 billion from K2.8 billion while treasury bills attracted a tiny fraction.
“Demand for government securities continued to increase in the fourth quarter of 2016, largely on account of easing liquidity conditions.
“…In addition, there was increased participation by non-resident investors in response to attractive yield rates, relative stability in the exchange rate and reduced uncertainty following the conclusion of the August 2016 general elections,” he said during the monetary policy announcement on Wednesday.
In terms of total stock of government securities, BoZ recorded K32.9 billion, representing 30.4 percent rise due to increased demand and upward adjustment in tender sizes and higher frequency of government bond auctions.
On lending rates, Dr Kalyalya said the trend continued upwards with the highest being in September at about 40 percent.
“Commercial banks’ nominal lending rates maintained an upward trajectory over the fourth quarter of 2016 despite a sharp fall in inflation,” he said.
The rising trend in lending rates reflected the preference by commercial banks to lock up funds in government securities, thereby reducing the amount of loanable funds available to households and private enterprises, as well as banks’ response to rising non-performing loans stemming from economic shocks.
Similarly, broad money, which is a given country’s total money supply and includes assets that households and businesses can use to make payments or to hold as short-term investments, such as currency, and funds in bank accounts, increased by 0.8 percentage point in the final quarter to K44.6 billion compared to 0.2 percentage growth recorded in the previous quarter.
The rise was attributed to the BoZ’s purchase of US$228.2 million to build-up international reserves.