In his Monetary Policy Statement on Monday, central bank chief John Mangudya announced a raft of measures to support the use of the local currency ruling out the return of dollarisation.
Some of the measures include maintaining the bank policy rate and medium term accommodation facility interest rates at 60% and 40% respectively in order to avoid further build-up on inflationary pass-through effects currently emanating from exchange rate indexation and the elevated global inflation pressures.
Mangudya maintained statutory reserve requirements for demand/call deposits and savings and time deposits at current levels of 10% and 2.5%, respectively, to promote savings and time deposits, while discouraging unproductive credit creation.
He said the bank will fine-tune the exchange rate policy which is premised on the foreign exchange auction system to focus on exchange rate flexibility and promotion of external competitiveness as well as tackling rent-seeking behaviour.
There will be timeous settlement of auction bid allotments within a period of two weeks and allotment of foreign currency on the basis of available foreign exchange to avoid incidences of settlement backlogs.
These are bold declarations. However, this is not the first time the central bank has promised timeous settlement of auction bid allotment.
At a meeting with business leaders in October, RBZ undertook to refine and streamline the foreign exchange auction system to ensure that it continues to play its price discovery role in the foreign exchange market and deal with the funding backlog of foreign exchange allotments and take appropriate measures to ensure that the backlog does not recur.
The backlog is still as we reported last week, companies are being forced to source the greenback from the parallel market to fund importation of raw materials. This has pushed rates up on the parallel market further pushing up the prices of goods and services.
Why it has taken long for the monetary authorities to ensure that allotments are in sync with the available forex remains a mystery. Business has been vocal for the central bank to implement that when signs began showing that it was struggling to fund the allotments.
This would have lessened the burden and reduced the backlog which critics say is fuelling the parallel market.
For their credit, monetary authorities have been clear on the need to buttress the local currency with some measures that will make the Zimbabwe dollar as a medium of exchange despite calls to dollarise the economy.
With 56% of the total deposits being local currency and the balance in foreign currency, there is no sufficient foreign currency liquidity to support dollarisation in Zimbabwe, according to Mangudya.
We reiterate that a local currency is the way to go if it is buttressed by good monetary and fiscal measures. The part payment of some taxes in local currency will go a long way in supporting the local currency. Critics however, posit that good measures will be thrown away as Zimbabwe heads toward the 2023 elections as some sweeteners will be rolled out to curry favour with the electorate. Such populism will put pressure on the local unit.
