Weekly Financial Market Developments 27 - 31 December 2021

FINANCIAL MARKETS DEPARTMENT

WEEKLY FINANCIAL MARKET DEVELOPMENTS

(27 - 31 DECEMBER 2021)

Main Highlights

Gross official FX reserves increased by US$12.2 million to close the review period at US$429.2 million (1.72 months of imports).

The Kwacha maintained a steady appreciation path against the US dollar for three consecutive weeks. The Kwacha also gained value against the Euro and the South African Rand but lost value against the British Pound. In process, the local unit closed the review period at K819.4421 per US dollar.

Liquidity conditions in the domestic money market significantly loosened relative to the preceding week, with daily average commercial banks' excess reserves, before borrowing from the central bank, averaging K10.0 billion.

The primary auctions for Treasury securities continue to be significantly under-subscribedand under-allotted. The cumulative Treasury securities allotment to planned issuance ratio in 2021/22 fiscal year declined to 59.34% from 59.61%.

Gross official FX reserves increased by US$12.2 million to close the review period at US$429.2 million (1.72 months of imports). This follows a US$5.1 million increase recorded during the preceding week.

Activity in the FX retail market significantly dropped during the review period, being the climax of the festive season that is characterised by holidays. ADBs purchased a total of US$8.13 million from their customers compared to US$32.98 million recorded during the preceding week. On the demand side, ADBs sold a total of US$7.60 million compared to

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US$29.26 million recorded during the preceding week.

The Kwacha maintained a steady appreciation path against the US dollar for three consecutive weeks. In process, the local unit gained 0.40% (K3.32) during the review week to close the year at K819.4421 per US dollar.

During the same period, the Kwacha gained 1.19% (K13.77) against the Euro and 6.82% (K4.22) against the South African Rand. However, the local currency lost 0.56% (K6.75) against the British Pound.

Liquidity conditions in the domestic money market remarkably improved as captured by daily average commercial banks' excess reserves, before borrowing from the central bank, which recorded K10.0 billion, from negative K78.1 billion observed during the previous week. Consequently, commercial banks were able to utilize resources in the interbank market to cover short positions with little recourse to the central bank. Hence, trading on the interbank market greatly improved to K18.1 billion per day from K6.8 billion per day registered during the week ended 24th December 2021 while access on the Lombard facility declined to K5.7 billion per day from K89.3 billion per day.

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The IBR remains firm and closely aligned to the policy rate at 11.98 percent. Thus, the IBR continues to be within the target corridor of +0.2/-4.0percentage points around the policy rate.

Central bank operations with the commercial banks were expansionary, injecting a net of K17.1 billion into the banking system. The injections were on account of net maturity of government securities amounting to K9.0 billion, customer currency deposits transferred to commercial banks accounts at the central bank totaling K7.9 billion, and central bank's net open market operations summing up to K8.9 billion. On the part counter, government revenue collection net of expenditure withdrew a total of K5.5 billion while central bank's net foreign exchange operations with commercial banks withdrew a further K3.2 billion.

The primary auctions for Treasury securities continue to be significantly under-subscribed and under-allotted.Government only tendered Treasury bills on the primary auction during the review week as per the issuance calendar and a total of K7.3 billion was subscribed and fully allotted against planned issuance of K16.0 billion. This represents an allotment to planned issuance ratio of 45.65%. The development led to a decrease in cumulative Treasury securities allotment to planned issuance ratio in 2021/22 fiscal year, to 59.34% from 59.61%, and increased allotment to subscription ratio, to 93.02% from 92.92%.

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