Staying the course
The Reserve Bank of Zimbabwe (RBZ) Monetary Policy Committee has maintained the bank’s policy rate at 200% per annum.
The policy rate was hiked in June from 80% as part of measures to curb speculative borrowing blamed for fuelling the rout of the local currency against major currencies, especially the greenback.
The hiking of the policy rate created consternation among the business community who felt it has increased the cost of capital making it difficult for companies to access overdrafts or loans to run their operations.
Banks cannot lend as there are no takers for the credit. Microfinanciers were hardest hit as they borrow from banks for on-lending to its customers.
In the latest review, the MPC gave a glimmer of hope on the review of the policy rate with central bank chief John Mangudya saying the committee will review the interest rates “in the first quarter of 2023 as dictated by inflation developments”.
The committee also agreed to further liberalise the foreign exchange market in the first quarter of 2023 and to enhance efficiency in the operation of the foreign exchange auction system and the willing-buyer willing-seller foreign exchange mechanism.
This was a departure from the past where the central bank insisted on the tight monetary policy to tame runaway inflation.
The tight monetary measures, complemented by fiscal consolidation, has seen inflation going down. Month on month inflation dropped to 1.8% in November from a high of 30.7% in June this year. This has seen annual inflation easing to 255% in November from 285% in August.
The Committee expects that the economy will grow by 4% in 2023 and that inflation will remain stable at below 3% per month throughout the year.
Inflation is number one enemy and evokes memories of 2007/8 in which the local currency became worthless. It had returned with a vengeance in June prompting Treasury and monetary authorities to use tools at their disposal.
The Treasury is pushing the value for money concept in which it scrutinises claims by government suppliers. Recently 19 suppliers were blacklisted after an investigation established that they were fuelling the foreign currency parallel market.
However, a balance must be achieved between the need to ensure economic stability and growth.
The economy requires some stimulus to grow after two years of disruptions caused by the Covid-19 pandemic. It is confronted with a new threat of power cuts which is set to slow the growth in capacity utilisation. A liquidity shortage of local currency has emerged amid warnings by analysts that such a move could accelerate dollarisation.
Mangudya said the MPC unanimously agreed to stay the course of a tight monetary policy until the first quarter of next year. The rise in foreign currency premiums on the parallel market is testimony that the battle is far from over.
