Saturday February 24 2024
Bonds will complement government efforts to lengthen the maturity profile of domestic debt, central bank says in report.
The Bank of Tanzania (BoT) has launched a new round of Treasury bond auctions in its effort to contain the domestic debt and improve money supply in the face of foreign currency shortages.
The central bank announced plans to re-open 10-year, 15-year, 20-year and 25-year Treasury bonds before the end of the 2023/2024 fiscal year, starting with a tender auction on a 20-year bond on February 21 at a 15.49 percent interest rate.
Next is a 25-year bond at 15.95 percent interest to be re-issued on March 6. At least eight more bond tenders will be floated in the four maturity categories before the end of June at interest rates from 11.44 percent for the 10-year coupon, according to the BoT’s official auction calendar.
Read: Uphill task awaiting new EA bourse bosses
According to BoT’s monthly review report for January, which was issued this week, Tanzania’s domestic debt stood at Tsh30.67 trillion ($12.03 billion) by end of December 2023, a Tsh485.4 billion ($190.35 million) increase from November.
Treasury bonds accounted for over three-quarters (75.5 percent) of the domestic debt stock, the report said.
The 25-year bond, which was first introduced on the Dar es Salaam Stock Exchange in April 2021, has become popular on the DSE, outstripping the shorter-term options by far.
The report said the latest auction in December drew bids of Tsh493.1 billion ($193.37 million) in total, of which Tsh420.7 billion ($164.98 million) was gained on successful bids.
The bond will complement government efforts to lengthen the maturity profile of domestic debt, develop the country’s financial markets, and provide an anchor for other market instruments such as mortgage financing and corporate bonds, and raise funds to plug budget deficit gaps.
Its attractions are the fixed coupon rate of 15.95 percent, exemption from withholding tax, and accumulated interest being payable semi-annually.
Read: Dollar scarcity hurts business in EA region
For DSE investors who also include commercial banks and financial institutions, the bond is gaining traction as a sensible option amid central bank efforts to tighten monetary policy further and address growing public concerns over disparities between its official forex rates and spiralling alternative market prices for the dollar in particular.
As of February 22, the official BoT rate for the dollar was Tsh2,535 against average bureaux de change rates of Tsh2,600 and widely reported alternative market rates of between Tsh2,800 and Tsh3,000.
The report quoted forex reserves of $5.45 billion at end of 2023, against $5.17 billion at end of 2022. It said the reserves were sufficient to cover about 4.5 months of projected imports of goods and services, above the national benchmark of four months.
In mid-January, the BoT announced a new interest-based monetary policy aimed at controlling interbank lending rates, a shift from its previous policy that was pegged on increasingly unpredictable money supply factors.
Under the new policy, a central bank rate of 5.5 percent was set for the first quarter of 2024, against the prevailing interbank rate, which is reviewed by the Bank every seven days, stood at 7.39 percent on February 20.
In its latest monthly review, the BoT said it would use “a variety of monetary policy instruments to align the seven-day interbank rate with the CBR while maintaining sufficient foreign exchange reserves.”
Read: EA capital markets fall 17pc as foreigners shift for deals abroad
The Bank said in a separate monetary policy mid-year review statement for 2023/2024, published this week, that it would “continue to engage with stakeholders in implementing reforms to remove factors contributing to the stickiness of lending rates and limiting the monetary policy transmission.”
The main areas of focus are enhancing consumer protection, financial literacy, financial inclusion, and “reducing the risk profile of borrowers”.
The bank also said the exchange rate would continue to be “market-determined” and it would maintain its participation in the interbank foreign exchange market “for monetary policy and reserve accumulation purposes, as well as smoothening out short-term excessive variations in the exchange rate that are inconsistent with market and economic fundamentals.
“The Foreign Exchange Intervention Policy shall guide the intervention, and market participants shall adhere to the code of conduct and guidelines,” it said.
Source link : https://www.theeastafrican.co.ke/tea/business/tanzania-banks-on-t-bonds-to-end-shortage-of-dollars-4535640?view=htmlamp
Author :
Publish date : 2024-02-24 08:00:00
Copyright for syndicated content belongs to the linked Source.
