RBZ’s delicate balancing act

SAMANTHA MADE

The Reserve Bank of Zimbabwe (RBZ) has signalled unwavering continuation with a stringent monetary policy stance over the next three months to curb inflation and stabilise the economy, while simultaneously pledging timely interventions to ensure liquidity flows into the economy and prevent significant disruptions.

Despite the challenges this tight monetary approach poses for businesses, the central bank has emphasised that its liquidity interventions will be targeted and strategic to ensure the economic system operates smoothly.

The RBZ’s decision to maintain a 35% policy rate and a strict monetary framework over the next quarter highlights its primary focus on controlling inflation.

However, the RBZ ‘s Monetary Policy Committee (MPC) resolved on Friday that the central bank will intervene as necessary to ensure liquidity remains available to avoid any economic paralysis caused by cash shortages.

This was revealed by RBZ governor, Dr John Mangudya.

“The MPC took cognisance of the low aggregate  demand in the economy and the need  for monetary policy to be more accommodative to balance  stability and economic growth. In this context, the MPC resolved to  maintain the current monetary policy stance for the next quarter, while ensuring  that there is adequate  flow  of liquidity to the market. Based on this assessment, the MPC resolved to maintain  the bank policy rate at 35%, the current  statutory reserve requirements for savings and time deposits for both local  and foreign currency at 15% and for demand and call deposits for both local and foreign currency deposits  at 30%. The MPC also resolved to continue to deploy the intra-day facility and the targeted  finance facility (TFF) to ensure adequate  liquidity in the economy in a well- sequenced  and mutually reinforcing  manner,” Mushayavanhu said.

A director at RBZ  on Friday told Business Times, a market leader in Business, financial and economic reportage that: “We will not waver from our tight monetary policy stance, but we are keenly aware of the vital importance of liquidity in keeping the market functioning.”

“Our commitment is to intervene at the right time and ensure that liquidity continues to flow to support the business sector and prevent disruptions that could harm economic growth.”

The RBZ has acknowledged that businesses are facing liquidity challenges due to the restrictive access to credit.

Consequently, the central bank is planning to utilise its existing liquidity facilities, including the intra-day liquidity facility and the Targeted Finance Facility , to provide businesses with the necessary financial resources when they need them most.

The business community has expressed widespread concern about the impact of the tight monetary policy on economic activity.

With the liquidity squeeze, local companies have been struggling to maintain operations, which in turn has impeded investment and job creation.

Many business leaders have urged the RBZ to be mindful of the potential long-term damage to economic growth if liquidity issues are not addressed promptly.

An official at the business lobby group, the Zimbabwe National Chamber of Commerce (ZNCC), who requested not to be named, pointed out that the reluctance of financial institutions to lend in such an environment is taking a toll on the business sector.

“Access to working capital is a critical issue. Without liquidity, the businesses cannot operate at full capacity, let alone grow. We need timely interventions from the RBZ to alleviate this situation,” the official told Business Times.

Zimbabwe’s largest business lobby group, the Confederation of Zimbabwe Industries (CZI)  echoed these concerns, noting that while inflation control is essential, the business community is at risk of being squeezed out of access to necessary resources.

“The economy cannot function on an over-restricted monetary policy alone. Businesses need liquidity to operate and grow, and the RBZ’s interventions will be pivotal in ensuring that liquidity is available where it is most needed,” CZI said.

In response, the RBZ has committed to expanding its liquidity support to ensure businesses have access to short-term funding.

RBZ governor Dr Mushayavanhu confirmed that the central bank will continue to monitor liquidity conditions closely and deploy its facilities to ensure businesses do not face significant financial strain.

While the RBZ’s priority is to manage inflation, many experts believe that the policy risks undermining economic growth if the central bank fails to strike a better balance between tightening measures and liquidity support.

Zimbabwe has faced high inflation rates for years, and although recent efforts have slowed the pace of price increases, some economists warn that the current policies could stunt long-term economic development.

Economist Ishemunyoro Machaya observed that while inflation control remains important, the RBZ must also be mindful of its broader economic objectives.

“The RBZ needs to find a way to balance inflation control with sustainable growth. If liquidity is too restricted, it will hurt businesses and make it harder for them to access the financing they need to expand and innovate,” Machaya said.

Another economist, Bhekimpilo Moyo, agreed with  Machaya,noting that excessively tight policies could result in a contraction of economic activity.

“We need an approach that doesn’t just focus on inflation control but also fosters growth by making liquidity available to businesses. Without this, private sector expansion will be stifled,” Moyo told Business Times.

The RBZ has outlined plans to implement timely and targeted interventions to ensure that liquidity remains available in the economy despite its commitment to a strict monetary policy stance.

This includes using the intra-day liquidity facility, which allows financial institutions to access funds quickly, and the Targeted Finance Facility which directs liquidity to specific sectors in need of financial support.

“We understand the importance of liquidity, especially for businesses that rely on access to credit to maintain operations. While we continue to uphold a strict monetary policy to control inflation, we will step in proactively to ensure that the necessary liquidity is available when required,” an RBZ director told Business Times.

These interventions are meant to address short-term liquidity constraints without undermining the central bank’s overarching goal of price stability.

The RBZ’s careful management of liquidity is designed to create a more stable economic environment where businesses can access funds, continue operations, and contribute to overall economic growth.

Despite the RBZ’s short-term interventions, many economists argue that Zimbabwe’s long-term recovery will depend on broader structural reforms.

These reforms should aim at creating a more conducive environment for businesses, improving the ease of doing business, and attracting both local and foreign investment.

Economic analyst, Augustine Chipunza  urged policymakers to look beyond monetary policy and focus on issues such as infrastructure development, improving regulatory frameworks, and reducing the cost of doing business. “Monetary policy alone cannot drive sustainable growth. Structural reforms are essential to address the underlying challenges that businesses face,” Chipunza said.

In addition, efforts to improve infrastructure, enhance labour market conditions, and attract investment would help stimulate productivity and foster long-term growth.

While the RBZ’s role in managing inflation and liquidity is crucial, these broader reforms are necessary to create an environment where businesses can thrive and the economy can grow sustainably.

The RBZ’s interventions to manage liquidity will continue to be a key factor in maintaining stability in the market.

While inflation control is important, the central bank’s willingness to step in and provide liquidity when needed is essential to ensuring that the economy does not grind to a halt.

The next few months will be critical in determining whether the RBZ’s dual approach of maintaining tight monetary policies while facilitating liquidity can prevent a more significant economic downturn.

“We are committed to ensuring that liquidity remains available to businesses in the market,” a director at RBZ, who requested anonymity, told Business Times.

“The key is to strike the right balance and intervene in a timely manner to support the economy while ensuring that inflation remains under control.”

The RBZ’s decision to continue with its tight monetary policy, coupled with its pledge to ensure liquidity through targeted interventions, is a critical step in maintaining macroeconomic stability.

In the coming months, the central bank will need to remain vigilant and responsive to the evolving economic conditions, ensuring that interventions are effective in preventing significant disruptions.

For businesses and for the broader economy, the RBZ’s ability to manage liquidity while controlling inflation will play a pivotal role in Zimbabwe’s economic future. The outcome of these policies will determine the country’s path toward sustainable growth and recovery.