LIVINGSTONE MARUFU
Industry is pushing the Reserve Bank of Zimbabwe (RBZ) to cut interest rates to 40% per annum from the current 150% amid fears the impact will drag down economic developments, Business Times can report.
The call by industry comes after the Monetary Policy Committee recently hiked the interest rates from 140% in the wake of rising inflation.
Annual inflation, which has been heading south over the months, bucked the trend in May, rising to 86.5% from 75.2% in April.
But business said the increase in interest rates could further misalign the fundamentals, which are not right.
In its recent submissions to authorities, the Zimbabwe National Chamber of Commerce (ZNCC) said raising ZWL$ interest rates could only worsen Zimbabwe’s situation rather than mending it.
“The ZWL$ interest rates which were increased from 80% in April 2022 to 200% in June 2022 and reduced to 140% and back to 150% again, should be further reduced downwards to levels of around 40%.
“It is our view that in the current circumstances, Zimbabwe cannot pursue a tight monetary policy, given that we have several other macroeconomic fundamentals that are still undesirable and need to be first aligned to avoid creating unintended consequences,” ZNCC said.
It said Zimbabwe’s aggregate demand was still average, economic activities and production in the productive sectors were also still average and the “economy is not overheating to warrant the current high-interest rates, which are also promoting dollarisation through increased US$ borrowing and have seen foreign currency-denominated loans increasing from 37% in December 2021 to 64% in December 2022”.
“It is therefore our view that reducing the interest rate policy will help to encourage growth and achieve other key macroeconomic fundamentals. This however does not mean we are not acknowledging that doing so might create room for arbitrage opportunities,” ZNCC said in a position paper.
The Confederation of Zimbabwe Industries president Kurai Matsheza said: “As an industry, we hope if the disinflation is sustained, then further reduction is expected sooner rather than later.”
Economist Joseph Mverecha said there was no strong case for a 150% interest rate.
“High-interest rates on ZWL$ are fuelling re-dollarisation. The authorities might think they are winning on inflation but local currency is on the verge.
“Evidence from money balances does not warrant high-interest rates in the economy and evidence from monetary aggregates does not support high-interest rates.
”The authorities should note that high-interest rates will not guarantee local currency stability,” Mverecha said.
