[Mugabenomics at its finest! Everything is crashing. Beautiful. He really should be killed for what he’s done to that country. Jan]

DWINDLING returns on the money market largely due to mounting inflationary pressures coupled with the announcement of June financial results have taken the lustre out of the money market, luring investors back to the equities.

Zimbabwe’s annual inflation rate for June 2005 rose to 164,3 percent, gaining 19,9 percentage points on the May 2005 rate of 144,4 percent.

The hike in interest rates by the central bank two months ago saw a massive exodus of funds from the stock market to the fixed interest instruments but the resurgent inflationary pressures are threatening to erode the positive real returns.

In the first four trading days of last week the mainstream index put on a solid 9,6 percent with major gains recorded in largely capitalised counters.

The recent increase in prices, particularly the 178 percent rise in fuel two weeks ago, is expected to further nudge inflation upwards while the June company results have also increased the buying pressure on the stock market.

The local bourse opened the week firmer, with the benchmark Industrial Index gaining 0,67 percent to close at 2 819 893,77 points. The Mining Index advanced by 2,38 percent to settle at 486 849,59 points, supported by gains made in Bindura.

On Tuesday the Industrial Index powered on 3,09 percent to settle at 2 907 134,43 points, lifted by gains made in large capitalised counters Old Mutual, Econet, Meikles and Innscor. On the day the Mining Index edged up by 0,09 percent to end at 487 271,42 points.

The current direction of the equities market is exactly the opposite of what the Reserve Bank of Zimbabwe anticipated after increasing the accommodation rate in May. The hike was meant to suffocate the bull-run, which the monetary authorities blamed for providing a fertile ground for huge amounts of unproductive funds.

RBZ said the rise in accommodation rates was meant to put the brakes on the billions of money being created by the stock market which could have been fuelling inflation due to the unmatched demand it ushered into the market.

It now remains to be seen what new tricks the RBZ, with inflation still its number one enemy, will pull out of the hat to formalise the trading of shares on the bourse in line with economic growth.

Despite the increased activity on the stock market, interest rates on the money market are going up as well in line with the spike in accommodation rates and inflation.

Last Thursday the money market opened $201 billion short and was forecast to close $421 billion in surplus at the end of the day. A total of $123,7 billion maturities from Treasury bill tenders outstanding were recorded.

The 90-day Negotiable Certificates of Deposit were indicated unchanged within their previous levels, ranging between 90 percent and 150 percent, Call rates were quoted in the 3 percent to 30 percent range and the Inter Bank Overnight rate was quoted at around 100 percent. The central bank was on the money market on the day with two Treasury bill tenders both valued at $200 billion for 91 days.

The first tender was subscribed to the tune of $260 billion, with the same amount being allotted at an average rate of 150 percent. All bids were indicated at 150 percent.

Source: AllAfrica.Com
URL: http://allafrica.com/stories/200507181070.htm…/p>