RBZ locks up liquidity in NNCDs

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) has moved to lock up excess liquidity in Non-Negotiable Certificates of Deposit (NNCDs) as part of its strategy to curb speculative lending and stabilise the exchange rate.

This decision comes despite mounting pressure from industry and commerce.

Dr. John Mushayavanhu, Governor of the RBZ, has stated unequivocally that the central bank will not reverse its decision.

In an exclusive interview with Business Times, a market leader in business, financial and economic reportage, Dr Mushayavanhu emphasised that the release of excess liquidity would be carefully timed to avoid triggering inflationary pressures.

“The Reserve Bank is actively managing liquidity conditions and has locked up excess liquidity in NNCDs to minimise speculative lending and prevent potential risks to price stability and exchange rate fluctuations,” Dr. Mushayavanhu explained.

While acknowledging the concerns of local companies that have not received their hard currency from the auction system, Dr. Mushayavanhu confirmed that businesses would have to wait for the NNCDs to be unlocked or opt for a two-year Zimbabwe Gold (ZiG) instrument, offering an annual interest rate of 7.5%.

Exporters would also be given a one-year ZiG instrument for the 25% of export earnings they are required to surrender to the Ministry of Finance, Economic Development, and Investment Promotion.

Dr. Mushayavanhu emphasised that he would not yield to pressure from businesses, stating, “I would rather inconvenience a few firms than jeopardize the entire economy. We will unlock the NNCDs, but definitely not now.”

Despite this, business leaders have voiced strong opposition, arguing that the RBZ’s decision is exacerbating their working capital constraints.

Many businesses were compelled to surrender Zimbabwe dollars upfront, leaving them struggling to meet daily operational costs.

A business executive, who preferred to anonymous lamented the situation, saying, “It is our hard-earned revenue. The central bank should not exercise despotic control over what we’ve worked for. Our businesses are facing severe working capital shortages and cannot access loans due to tight liquidity. We are being forced to downsize just to survive.”

Christopher Mugaga, CEO of the Zimbabwe National Chamber of Commerce (ZNCC), criticised the policy as a sign of inconsistency, particularly as no payments have been made to businesses despite the time that has passed.

“The central bank should have started making payments to businesses to help with working capital, given the length of time that has passed. These policy inconsistencies erode trust in the market,” he said.

Business executives warn that if the RBZ delays further, many companies may close before receiving their funds. It is estimated that local companies are owed nearly US$100m from the outstanding forex auction allotments, a substantial sum given the state of Zimbabwe’s industrial sector. Companies have lobbied Dr. Mushayavanhu for a phased release of the funds, but thus far, the central bank has not complied.

Economists have raised concerns that the RBZ’s policies may backfire, creating larger problems down the line when the government eventually settles its debts.

Economist Tony Hawkins criticized the RBZ for its repression of the economy, stating, “The RBZ’s policy suppresses inflation rather than addressing it, and it maintains an overvalued exchange rate that favors imports and punishes exports. This approach harms the formal private sector while propping up the inefficient public sector.”

He added: “The RBZ’s handling of foreign currency is reminiscent of the practices in economies like Belarus, Cuba, North Korea, Iran, Russia, and, more recently, China.”

He also questioned the central bank’s de-dollarisation strategy, asserting, “The RBZ claims to be pursuing a de-dollarisation strategy, but its actions suggest otherwise. The notion that US$627m in reserves covers the entire money supply is flawed. The real money supply exceeds US$3bn.”

Another economist Vince Musewe agreed that while the RBZ’s actions have temporarily stabilised the currency, they have stifled economic activity and suppressed disposable incomes.

“The economy has effectively dollarised, with most transactions now taking place in US dollars. This is not a normal economic situation,” he said.

Yet another economist Malone Gwadu argued that the RBZ’s tight monetary policy is hindering economic growth and called for a re-evaluation of the approach. “The economy desperately needs funding to support economic activities. The liquidity suppression is limiting aggregate demand and impeding potential economic activity,” he said.

Gwadu suggested that a more balanced policy approach, including a gradual loosening of monetary measures, would better support key sectors like agriculture and mining, which are poised for recovery. “The central bank should complement these industries by adopting more accommodating policies, such as lower interest rates and liquidity support, to foster economic recovery,” he added.

The RBZ’s decision to withhold the NNCDs has sparked intense debate, highlighting the challenge of balancing monetary stability with the needs of businesses in a fragile economic environment. As Zimbabwe’s economy continues to navigate these turbulent waters, the future of its monetary policy remains uncertain.