The Reserve Bank of Zimbabwe (RBZ) next month presents the Monetary Policy Statement amid higher expectations.
Concerns have been raised on need for the central bank to review the bank policy rate and the retention threshold to help reboot the economy. There are growing calls to reduce the bank policy rate from the current 200% per annum as it has inhibited lending to the economic sectors.
The policy rate was raised to 200% from 80% last year as part of tight monetary policy measures to combat runaway inflation. In the RBZ’s book, there was speculative borrowing from banks to finance parallel market activities leading to the routing of the Zimbabwe dollar against major currencies such as the United States dollar.
The last Monetary Policy Committee meeting in December maintained the bank policy rate and medium-term lending rate at current levels of 200% and 100%, respectively, promising to review the interest rates in the first quarter of 2023 as dictated by inflation developments.
Annual inflation has been on a decline in the past four consecutive months to 243.8% in December from 285% in August. Month on month inflation was 2.4% in December from a peak of 30.7% in June, demonstrating that the tight monetary policy measures are bearing fruits.
The retention threshold has also been a thorn in the flesh for economic sectors. The call for a review of the retention levels comes as the gap between the official and parallel market exchange rate continues to widen.
Yesterday, the dollar was trading at ZWL$779.3101 on the interbank market while on the thriving parallel market, the dollar was trading at ZWL1,000. The manufacturing sector is pushing for the removal of the forex retention threshold to wholly retain their foreign currency proceeds arguing that the economy has redollarised and there is no need for taking a portion from companies’ hard-earned cash.
Manufacturing retains 60% of its earnings in foreign currency with the balance being paid in the Zimbabwean dollar at the prevailing official exchange rate. The sector said it is battling serious working capital challenges.
Tobacco growers also want to wholly retain their foreign currency proceeds arguing the prevailing 75% retention is insufficient to cover required input components. They argue that the increasing costs of production are not matched by floor prices plus a margin as the 2022/23 recorded high costs of production at an average of 35% – broken down into 25% average increase in inputs and +10% increases in local costs.
The common denominator among economic sectors is the need for a review of the retention threshold. It is not a big ask for the central bank as it last month promised to review the foreign currency retention thresholds on exports and domestic FCAs during the first quarter of 2023 “in line with improved efficiency of the foreign exchange trading systems in order to sustain the current growth trajectory in foreign currency receipts”.