Repos rate doubles, hits 35-day papers

Repurchase agreements (Repos) rate has almost doubled to impact negatively the 35-day government papers. 

The monthly average for Repos rate swung up to 4.03 per cent last November compared to 2.64 per cent registered in the preceding month.

The Bank of Tanzania (BoT) said in its December ‘Monthly Economic Review’ that the bank conducted a number of transaction last November worth 255bn/- against 145bn/- of October.

BoT’s Director of Economic Research and Policy, Dr Joseph Masawe (pictured), said the 14-day Repos are competing with 35 days Treasury bill with the former leading the battle.

“Investors in Repos walked way from 35-day paper due to better yields offered by Repos… it might be because of Repos’ yields,” Dr Masawe told the ‘Daily News’.

He said in comparison it only takes 14 days to reap and rollover the investment for Repos compared to 35days of Treasury bills.

The last December data shows that if one invests in 14-day Repos gets 5.5 per cent compared to a 35-day T-bill of 4.0 per cent. Repos is a financial transaction in which one party sells a security to the other party, with an obligation to buy it back at a certain date later at a greater than the original sale price.

That way, T-bill investors shunned 35 days paper for the seventh consecutive auction due to low yield compared to similar short term investments.

Data shows that the last time investors participated in the 35-day paper auctioning was last October, this complicating pricing of short range loans, deposits and the like.

Bank M’s Vice President and Head of Treasury Henry Lesika said investors, especially banks, have been shying away from the 35 days because it pays a lower yield compared to similar shortterm investments.

“This difference is significant enough to compensate the investors for the credit risk associated with such alternative investments like interbank market,” 

Mr Lesika told the ‘Daily News’: “Around the same time the interbank overnight market was paying two times that return (above 8 per cent), with one week to one month paying above 10 per cent.”

The market feels the pitch of absence of 35-day interest rates. Mr Lesika said the problem of not having active trades on the 35 days is that the market lacks an interest rate benchmark for onemonth.

“Remember Tanzania does not have an interest rate benchmark like Libor (London Interbank Borrowing Rates), hence Treasury Bills and Bonds have been used as the reference,” Mr Lesika said.

As a result, he went on, “pricing of short-term deposits, loans and derivatives becomes complicated and lacks consistence across market.”
Source: Daily News, reported from Dar es Salaam, Tanzania

Share on Google Plus

About Abduel Elinaza

This is a short description in the author block about the author. You edit it by entering text in the "Biographical Info" field in the user admin panel.