RBZ holds firm on tight liquidity policy amid industry pressure

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) remains resolute in maintaining a tight liquidity stance, despite mounting pressure from industry leaders who argue that an injection of funds is critical to sustaining operations across sectors.

Central bank officials, however, warn that loosening monetary policy would risk destabilizing an already fragile economy.

Speaking to Business Times, a market leader in business, finance and economic reportage, on thev sidelines of the recent  launch of the National Venture Capital Company of Zimbabwe (NVCCZ)in the capital Harare, RBZ Deputy Governor Dr. Innocent Matshe underscored the institution’s commitment to a cautious monetary policy designed to curb inflationary pressures.

“Injecting additional liquidity into the market would exacerbate inflationary pressures. Our priority is to optimize the utilization of existing funds within the system,” Dr. Matshe stated.

Dr. Matshe maintained that the current liquidity levels are sufficient to meet the economy’s demands, provided foreign currency reserves increase to support further injections.

“The liquidity challenge lies more in distribution than in availability. There’s enough money circulating in the system. We encourage financial institutions to deepen interbank trading as a mechanism to strengthen market operations,” he added.

He pointed to the establishment of the NVCCZ as a step toward deepening Zimbabwe’s capital markets, fostering financial instruments, and providing alternative funding channels for businesses.

Zimbabwe’s weekly market liquidity requirements are estimated to range between US$280m and US$320m. According to Dr. Matshe, the central bank has been injecting approximately ZWG $1.5bn (US$57.56M) daily, translating to about US$285.27m weekly.

“This is adequate to service the economy. The focus should be on identifying inefficiencies in fund allocation that are hindering businesses from accessing the required financing,” he explained.

The RBZ, he added, has been reinjecting locked funds through mechanisms such as the Term Funding Facility (TFF).

“These are not fresh funds but recycled liquidity, ensuring no inflationary impact while meeting institutional needs,” he clarified.

Despite RBZ’s assurances, industry leaders have voiced concerns over the ongoing liquidity crunch, which they argue is hampering operational efficiency.

Several executives, speaking anonymously, highlighted the stark reality of cash shortages at commercial banks, which struggle to extend credit to the productive sector.

One top banking executive remarked, “While the RBZ claims there is enough liquidity, the reality is that banks have insufficient deposits to support businesses. This situation has severely constrained lending, leaving us with minimal room to generate revenue.”

Business leaders are urging the RBZ to address the liquidity bottlenecks in the forthcoming Monetary Policy Statement, calling for measures to ease constraints and stimulate economic activity.

Sekai Kuvarika, CEO of the Confederation of Zimbabwe Industries (CZI), described the current liquidity squeeze as a significant impediment to industrial operations.

“The shortage of both US dollars and ZiG liquidity stems from increased reserve requirements, which have curtailed banks’ lending capacity. This has created a vicious cycle of working capital constraints, heightened liquidity demand, and an elevated risk of defaults across value chains,” Kuvarika explained.

Similarly, Zimbabwe National Chamber of Commerce (ZNCC) CEO Christopher Mugaga expressed concern over the detrimental impact of the liquidity crunch on businesses.

“Many companies are struggling to meet their ZiG obligations due to the funding shortfall. This has disrupted operations across industries, and the central bank must act swiftly to mitigate further economic strain,” Mugaga said.

Industry representatives have proposed several solutions to address the liquidity crisis. One suggestion involves increasing the foreign currency retention threshold to over 75%, enabling businesses to retain more forex and meet operational demands.

However, the RBZ has yet to indicate whether it will adopt such measures. The central bank’s stance remains focused on maintaining monetary discipline to safeguard macroeconomic stability.

The debate over liquidity policy reflects a broader challenge facing Zimbabwe’s policymakers: balancing the need for economic stability with the imperative to support growth and industrial productivity.

While the RBZ emphasizes controlling inflation and preserving monetary stability, businesses argue that restrictive policies are stifling economic recovery. The ongoing liquidity constraints have left many firms unable to access working capital, jeopardizing production and employment.

As the central bank prepares its next Monetary Policy Statement, stakeholders across Zimbabwe’s economic landscape will be watching closely.

Industry leaders hope for policy adjustments that address their concerns, while the RBZ remains steadfast in its commitment to monetary discipline.

The question remains: can the central bank strike a balance between stability and growth, or will the current liquidity constraints continue to weigh on Zimbabwe’s economic prospects?

The coming months will be critical in shaping the trajectory of the economy and determining whether Zimbabwe can achieve the sustainable growth its industries so desperately need.