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Overnight borrowing rate drops

The rates dwindled from historical high of about 35 per cent early this month following central bank’s tight liquidity measures to combat exchange fluctuations and high inflation.  Standard Chartered Bank, on its daily market report, described the trend as a response of softening money control in the circulation, which are growing stronger every day. 

“Sentiments of easing liquidity continue to grow stronger as overnight weighted average rate continues to fall now at 6.48 per cent,” the bank said on Wednesday. Overnight is a window that banks lend each other and has either positive or negative impact on the final price of loan to a customer and started to climb last August after exchange rates continued to heading north. 

Tanzania Securities Business Analyst Joel Nkya attributed the declining trend to fall of the Repo:  “The fall of interbank lending rate could be attributed to the fall of Repo rates which dropped from 13.5 per cent in the previous week to 8.5 per cent this week for 14 days Repo.” 

Shilling strength is among the factors that pushed down the overnight rates as for the second week has been trading at very little volatility against US dollar.  However, the shilling weakened slightly against the US dollar yesterday to close the market at about 1,610/- on the back of some demand in the interbank and corporate markets.  

The low levels of overnight rates also are attributed to the five-year Treasury bond which has a yield rate of 13.15 per cent well below the inflation rate of 19.8 per cent. The bond was auctioned yesterday.  At the end of last year the central bank cancelled two auctions of five-year bonds due to disagreement with bids from investors who wanted sufficient yields to avert the inflation risks.          

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Author: ABDUEL ELINAZA

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