RBZ cuts interest rates
BUSINESS REPORTER
The Reserve Bank of Zimbabwe (RBZ) has cut the bank policy rate to 150% from 200% per annum in response to a drop in inflation in a relief for firms that were struggling to borrow in local currency.
In his Monetary Policy Review statement released on Thursday, RBZ governor John Mangudya (pictured) said the monetary policy remains restrictive to sustain the current stability with interest rates aligned to inflation developments in order to sustain and strengthen economic resilience.
“Bank policy rate reduced from 200% to 150% per annum, to align with the inflation outlook,” he said.
The lending rate on the Medium-term Bank Accommodation Facility for the productive sectors, including individuals and MSMEs was reduced to 75% from 100% per annum.
Mangudya said the bank was maintaining the prevailing bank policy rates the minimum lending rate for all banks.
The bank policy rate was raised to 200% from 80% last year as part of tight monetary policy measures to combat runaway inflation. This came after 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 promised 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 five consecutive months to 229.8% in January from a high of 285% in August. Annual inflation is projected to progressively decline and end 2023 in a range of 10-30%, Mangudya said.
The high interest rates had created a ZWL$ liquidity crunch as firms warned the move would affect their operations. This pressured US$ borrowing as most companies could opt for hard currency borrowing against expensive local currency borrowing.
Mangudya standardised the export retention threshold at 75% across all sectors, including firms listed on the Victoria Falls Stock Exchange with effect from February 1. The manufacturing sector was retaining 60% of its export receipts.
Foreign currency retention on domestic sales in foreign currency has been increased to 85% with effect from February 1 as part of measures to further liberalise the foreign exchange market and reducing the demand of foreign currency on the auction system and the interbank market.
Mangudya said the willing buyer Willing-Seller (WBWS) and the auction system will continue to complement each other. The WBWS continues to act as the interbank exchange rate and the platform will further strengthen the liberalisation through forex sales to banks and bureaux de change through auction on a wholesale basis, he said.
The auction system continues to act as a foreign currency re-distribution mechanism to gauge foreign currency demand in the economy.
The statutory reserves were standardised with effect from February 1 as follows: foreign currency demand and call deposits (10%), foreign currency time and savings deposits (5%), domestic currency and call deposits (10%) and domestic currency time deposits at 5%.
Mangudya said the policy measures will be anchored by the continued use of interest rates to regulate the cost of money and aggregate demand conditions to achieve the inflation objective.
He said it will also be anchored by the continued use of gold coins and the auction system as part of open market operations to stabilise the exchange rate in order to minimise the exchange rate pass through to domestic prices and regular interventions in the foreign exchange market through forex sales to banks through auction on a wholesale basis
