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Tight liquidity hits Treasury

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The persistent tight liquidity conditions in commercial banks continue affecting the Treasury’s attempt to push through its securities on the market, with recent figures showing subdued allotment of notes compared to planned issuance.

This is according to the Reserve Bank of Malawi (RBM) weekly financial report for September 13 to 17.

The report says the government raised a total of K16.2 billion on Treasury securities primary market through Treasury bills (K3.5 billion) and Treasury notes (K12.7 billion).

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It, however, says the Treasury bills allotment was against planned issuance of K16.1 billion while Treasury notes allotment was against planned issuance of K24.2 billion.

“This represents allotment to planned issuance ratio for Treasury bills and Treasury notes of 21.46 percent and 52.53 percent, respectively. Cumulatively, in 2021-22 fiscal year, Treasury securities allotment stands at 85.4 percent of subscription and 40.2 percent of planned issuance as per the issuance calendar,” the statement reads.

The central bank has attributed the tight liquidity conditions to Covid dislocations which have been unpredictable in all sectors of the economy.

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The daily commercial banks’ excess reserves before borrowing from the central bank, according to the report, averaged negative K72.7 billion up from negative K81.9 billion recorded during the week ended September 10 this year.

In tandem with the liquidity improvement, daily average access on the Lombard window declined by K4 billion to K93.4 billion. Likewise, trading on the interbank market averaged K15.9 billion per day, down from the K22.9 billion per day recorded during the preceding week.

Financial market analyst Cosmas Chigwe believes the tight liquidity is because banks gave out a lot of loans to both private sector players and the government when the world started opening up.

He believes the tight liquidity may be a blessing in disguise for the government as it will reduce domestic borrowing but it may also affect development.

“The under-allotment means that government is having less borrowing but that may be bad because if government was borrowing for a certain developmental project, it means it may not be able to fund it,” he said.

Banks and the insurance sector are the biggest lenders of the government when it comes to domestic borrowing.

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