Mangudya warns of interest rate hikes

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, has warned that the apex bank would impose even higher interest rates if market indiscipline kicks in, Business Times can report.

Interest rate hikes normally serve as a way for the RBZ to tame inflation by making it more expensive for banks to loan people money for speculative purposes.

“If it means that we are going to hike the interest rates to unsustainable levels, we will do so if the market is not disciplined,” Mangudya said at the recent Confederation of Zimbabwe Industry (CZI) symposium.

In his monetary policy statement released last week, Mangudya, cut interest rate to 150% from 200% as inflation continued to gradually slow down.

Annual inflation eased to 229.8% in January from 243.8% in December 2022. It has been on the downward trend from a peak of 285% in August last year.

Month on month inflation also fell down to 1.1% in January from 2.4% in December 2022.

But, Mangudya warned business leaders attending the CZI meeting that if market disciple was not maintained, he will hike interest rate again.

The interest rate impacts how much the financial institutions charge each other when they borrow overnight to satisfy liquidity requirements. This in turn impacts other market rates.

A higher interest rate means more expensive borrowing costs, which can reduce demand for loans or can make loans expensive to the extent that borrowers struggle to repay loans.

In response non-performing loans (NPL) may rise again.

According to official data obtained from the RBZ, the NPLs ratio stood at 1.58% as of December 31 2022 against the international threshold of 5%.

Resultantly, the Zimbabwe Asset Management Company (ZAMCO), has since wound down its operations.

At 150%, business lobby group, the Zimbabwe National Chamber of Commerce (ZNCC), believe the interest rate remained high.

ZNCC said the RBZ should further cut the interest rate to 80%.

“While the 2023 monetary policy statement has reduced interest rates (to 150%), the rate is still considerably high. Going forward, in line with the inflation outlook, we expect the interest rates to be further revised downwards to about 80% before year-end,” ZNCC said.

ZB Financial Holdings Limited chief finance officer Emmah Mungoni said the bank policy remains high even at a reduced rate of 150%.

“However, we expect the interest rates to be further revised downwards to an average of 80% before year-end.”

AFC Holdings Strategy and Business Development head Joseph Mverecha said the 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.