Paul Nyakazeya, Group Digital Editor 
MONEY market instruments in Zimbabwe are likely to remain unviable in the short-term as the country’s inflation is seen remaining high, a wealth management firm has said.
Zimbabwe’s month-on-month inflation declined from 6,99 percent in February to 6,31 percent in March, but annual inflation escalated from 66,11 percent to 72,70 percent over the same period and the country remains among the five worst inflationary economies globally.
“For the money market, high inflation continues to threaten the viability of this asset class on the ZWL side. Although interest rates continue to increase, they remain behind the official inflation rate and thus do not compensate investors for inflation growth and adequately compensate investors for inflation risk,” First Mutual Wealth (FMW) said in a recent note.
The financial service firm said innovation within the sector was expected to sustain in 2022 and this is projected to offer some relief.
News of indexed money market products, a growing US dollar denominated money and bond market and inflation indexed instruments are expected throughout the course of 2022, FMW said.
“However, we expect the government of Zimbabwe’s Treasury Bill and bond note issuances to remain below inflation expectations as we go into 2022. This is because we suspect that the government will not want to increase interest rate costs in the market given that it has budgeted itself to be a net borrower of $76,5 billion from the economy in 2022,” FMW said.
The inflation volatility brought on by higher money supply and continued aggressive weakening of the Zimbabwean dollar in the alternative market greatly threatens prospects for this asset class and FMW said it would recommend shorting the Zimbabwe dollar asset class whilst the US dollar side is recommended for accumulation.
“In the outlook, activity in this asset class is expected to remain at the short end of the market whilst the absence of inflation hedging instruments for prescribed assets may continue to deter active participation in treasury securities as investors seek value preservation assets from real assets,” the firm said.
During the first quarter, commercial bank interest rates earned on plain money market investments were sub-inflationary, a continuation from the same position experienced in the previous quarter as inflation continued its upward trend.
The environment did not see banks offering competitive rates, with quotes ranging from 20 percent to 27 percent compared to the 40 percent to 55 percent offered for secured private placement arrangements.
