RBZ Governor defends austerity stance

SAMANTHA MADE

The Reserve Bank of Zimbabwe (RBZ) governor, Dr John Mushayavanhu, has staunchly defended the central bank’s tight monetary  policy, crediting it  with restoring price and exchange rate stability.

Mushayavanhu, this week told Business Times, a market leader in business, financial and economic reportage, that strict monetary controls have been instrumental in curbing inflation and anchoring the local currency.

“Indeed, the Reserve Bank is strongly committed and remains unwavering in maintaining the current tight monetary policy stance, which has served the country very well in restoring and sustaining price, currency, and exchange rate stability in the economy,” Mushayavanhu said.

He cited recent inflation trends as evidence of the policy’s effectiveness.

“For instance, month-on-month ZiG inflation, which spiked in October 2024 following the sharp exchange rate depreciation, and again in January 2025 following a transitory shock, has remained low on average, moderating to 0.5% in February 2025 and -0.1% in March 2025, therefore anchoring inflation expectations,” he explained.

Mushayavanhu further argued that currency stability is crucial for fostering a conducive environment for sustained economic growth and development.

Economist Malone Gwadu acknowledged that a tight monetary policy is an effective stabilisation measure in times of inflation and market volatility, as was the case in Zimbabwe.

However, he warned that it is not a long-term solution for economic growth and development, as it restricts credit availability and raises borrowing costs.

“This is because limited credit availability and high credit costs prohibit borrowing, and borrowing is a critical tool for growth as it aids business liquidity for expansion and has an accelerator effect,” Gwedu said.

He emphasized the need for a balanced approach.

“Gradual refinement of the current tight monetary policy after achieving its stabilization goals is crucial to enabling policies that support a 6% economic growth target.”

He suggested adjusting the Term Finance Facility (TFF) to align with sustainable economic expansion.

Economic analyst Victor Bhoroma concurred that the tight monetary policy has contributed to exchange rate and price stability.

“Yes, to some extent, there is exchange rate and price stability. The ongoing price stability borrows from the contractionary monetary policy being pursued by the central bank,” he said.

Bhoroma, however, pointed out that the limited circulation of the Zimbabwean dollar is a critical factor. “It is also key to note that very few producers or service providers still charge in ZiG. The economy has largely dollarized, so demand for the local currency is close to zero,” he noted.

Economist Dr Prosper Chitambara acknowledged that the tight monetary policy has contributed to some stability. “There has been some stability in terms of exchange rates and overall prices,” he observed.

Christopher Mugaga, Chief Executive Officer of the Zimbabwe National Chamber of Commerce (ZNCC), also noted the positive outcomes of the policy. “I think we are seeing dividends from the tight monetary policy, particularly in exchange rate stability, as observed over the past two months,” he said.

However, Mugaga cautioned that monetary policy alone is insufficient for sustainable growth.

“A tight monetary policy must go hand in hand with fiscal policy. You cannot evaluate its impact in isolation without considering fiscal policy and other economic factors,” he stated.

Zimbabwe has employed various monetary policy tools to stabilise the exchange rate and curb inflation, including increasing interest rates to reduce money supply and foreign currency demand.

While the RBZ maintains that its tight monetary policy is necessary for stability, economists warn that prolonged austerity could stifle economic growth.

The debate now centres on how and when to transition from stabilisation to policies that foster sustained expansion.