Overnight rate slides to six-month low

Bank’s overnight rate today slides to six months low to 6.48 per cent, thanks to the fall of the repurchase agreement and easing of tight money stance.

The rates climbed down significantly from historical highest level of about 35 per cent attained early this month following central bank’s tight liquidity measures to combat exchange fluctuations and high inflation.

Standard Chartered Bank said on its Daily Market report that this was the sign that the response to softening of money control in the circulation, which are growing stronger everyday.

“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.

Overnight is a window that banks lend to each other and has either positive or negative impact on the final price of loan to a customer. The rate started to climb last August when exchange rates were continuously heading north.

Tanzania Securities Business Analyst Joel Nkya attributed the declining trend to fall of 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
8.5per cent this week for 14 days Repo,” Mr Nkya said in Weekly market report issued by his firm.

Shilling strengthening is among the factors that pushed down the overnight rates as the market experience moderate volatility of the local currency against US dollar.

The overnight rate was not affected by slight sliding of the shilling against a dollar, to close the market at about 1,610/-, on the back of some demand in the interbank and corporate markets.

Also, the low levels of overnight rates  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 the last year the central bank canceled two auctions of five-year bonds due to disagreement with bids from investors who wanted yields that averted the inflation risks. 
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