After ‘test run’, Zimbabwe central bank holds first public T-bill auction in seven years

Zimbabwe central bank

Zimbabwe’s central bank on Wednesday sought to raise 30 million Zimbabwe dollars ($3.27 million) at its first public auction of treasury bills since 2012.

Between 2013 and last year, the government held private auctions for banks and insurance firms and used a central bank overdraft facility to raise money. It often breached its borrowing limit, pushing domestic debt to more than $9 billion.

Under a staff-monitored programme with the International Monetary Fund, Harare promised to limit its reliance on the overdraft facility, and Finance Minister Mthuli Ncube told business leaders earlier this month that the government had not borrowed from the central bank this year.

The Reserve Bank of Zimbabwe invited bids for 91-day treasury bills worth 30 million Zimbabwe dollars, which would be allotted to successful bidders on Thursday.

Ncube, who is set to present a midterm budget review Thursday, has pledged to lower the budget deficit to below 5% of gross domestic product this year from 11.7% in 2018.

Test run

RBZ ran a “test auction” of TBs earlier in July, hoping to gauge appetite for the paper while preparing to issue a long-term infrastructure bond

According to Ncube then, that first auction was important in helping Treasury work out the yield curve as it prepares to issue new instruments, including a long term bond to fund rehabilitation of water and sanitation infrastructure.

“The purpose of the auction was to test the market in terms of TB appetite and to also enable us to work out a yield curve,” Ncube said. “This is already telling us about the shape of the yield curve and where long term interest rates are going so that when we issue this infrastructure bond, we have an idea as to the kind of pricing we should accept when the market responds to this long term infrastructure bond.”

In that initial auction, Treasury offered a 91-day bill at 16.5%, a 180-day TB at 19.6% and a 365-day TB at 17%. The yields were below inflation, and eyes will be on the latest public auction to see whether Ncube has cracked a yield that gives central bank a new monetary policy tool to use against rising inflation.