BUSINESS REPORTER
The Reserve Bank of Zimbabwe (RBZ) has maintained the bank policy rate at 80% on the back of the existence of strong fundamentals and the government’s plans to come up with measures to stabilise the economy.
In an update Tuesday after last week’s Monetary Policy Committee, RBZ governor John Mangudya said the committee noted with satisfaction that the economic fundamentals have remained strong to support a stable exchange rate as evidenced by a “favourable current account balance, positive growth of the real sector, public works undertaken by Government, fiscal sustainability and a tight monetary policy stance”.
“The positive trend in foreign currency generation has seen the country realising US$2.4bn in foreign currency receipts during the first quarter of 2022, an increase of 15.9% compared to foreign currency received during the same period in 2021,” Mangudya said.
“The foreign currency receipts were against foreign payments of US$1.8bn, leaving a surplus of US$1.9bn.
“Money supply has also remained largely under control, with reserve money remaining stable at levels of around ZWL$28bn for the past six months, while annual growth in broad money fell from 384% in March 2021 to 151% in March 2022.”
Mangudya said the existence of strong economic fundamentals suggests that the recent exchange rate shocks are a manifestation of “negative sentiments or perceptions” attributable to people’s past experiences with hyperinflation and inevitable losses incurred during currency reforms.
His statement comes amid a sharp depreciation of the local currency against the greenback on the parallel market due to strong demand arising from the inability of the central bank to timeously release foreign currency allotted from the auction system with the backlog now over US$350m.
It also comes on the back of rising inflation with the annual inflation for April surging to 96.4% in April from 72.7% in March amid fears it would hit three-digit levels this month.
Mangudya said the committee is of the view the uptick was as a result of a combination of global shocks and the pass-through effects of the recent exchange rate depreciation on the parallel market, with a significant proportion of the inflationary pressures emanating from the impact of the on-going Russia-Ukraine conflict.
“The Committee further noted that the erosion of people’s savings due to inflation compelled them to try and avoid similar losses by holding the US dollar as a store of value,” he said.
“The Committee, therefore, welcomed the decision by Government to come up with measures to enhance confidence in the economy, deal with market indiscipline and increase the demand for the local currency, which measures will go a long way in buttressing the current tight monetary policy stance, restoring confidence in the economy, taming market indiscipline, stabilising inflation and exchange rates and creating a conducive environment to support the envisaged economic growth rate of 5.5% in 2022.”
RBZ also maintained the Medium-Term Bank Accommodation facility interest rate at 50% and the minimum deposit rates for ZWL$ savings and time deposits at 12.5% and 25% per annum, respectively.
RBZ also maintained the quarterly reserve money growth target at 5% for the quarter ending June 2022; and also retained the foreign payment transactions limit on the willing-buyer-willing-seller foreign currency trading arrangement for banks and bureaux de change at US$1 000 and allowing the bank to increase the limit as conditions permit.
