Tighten monetary policy: Economists

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) is facing mounting pressure to tighten  the monetary policy and take action to curb the country’s rogue exchange rate and soaring inflation and there are still substantial upside risks to the forecast for both.

When the markets opened yesterday, anyone checking the exchange rate between the Zimbabwe dollar and the greenback   on the parallel market was probably  taken aback   to get quotations  ranging  between ZWL$16 000:US$1 and ZWL$17 000:US1 , up from ZWL$8 000 at the beginning of January 2024.

On the formal market such as the willing seller-willing buyer, the Zimbabwe dollar was yesterday trading at ZWL$10 152: US$1, up from about ZWL$5 900 in January 2024.

Apparently, the out-going RBZ governor, Dr John Mangudya, is expected to deliver the 2024 monetary policy in the next few weeks.

Dr Mangudya will step down from his role at the central bank in April and will be succeeded  by Dr John Mushayavanhu, a former FBC Holdings CEO.

Analysts who spoke to Business Times yesterday highlighted that Dr. Mangudya needs to come up with measures to deal with the runaway exchange rate that is pushing prices up.

The price of goods and services has consequently skyrocketed.

“The elephant in the room is the exchange rate stability and if governor Dr Mangudya puts in place measures that will arrest inflation and stabilise the exchange rate everything will fall in place,” the Confederation of Zimbabwe Industries president Kurai Matsheza

He added: “All other challenges depend on these factors and if he wins against exchange rate, he (RBZ governor) will win the forex retention threshold puzzle as the gap between the official and parallel market will be narrow.”

According to economic analyst Victor Boroma, Zimbabwe desperately needs an efficient foreign exchange system so as to crowd in various foreign currency supplies in the market, especially households and the informal market.

“The auction market has run its race, and its effectiveness may have waned. There is need to allow an independently managed foreign exchange system by commercial banks.

“Secondly the interest rate has to be aligned with actual inflation rates to deter speculative holding of the United States dollar and artificial demand for the American dollar,” Boroma said.

An economist who wished to remain anonymous stated that Dr. Mangudya will leave a good legacy if he stabilises the exchange rate when his term ends at the end of April this year.

“Exchange rate stability is the panacea or antidote to all the problems that the country is facing. If the governor can do that, all the economic problems will be solved.

“That has remained elusive, we seem not to have a long standing solution to the long term stability,” the economist said.

He added: “Stability is difficult to achieve as the government is faced with huge payments to the suppliers hence there is a need to strike a balance between the fiscal and monetary policy stances.”

Another economist,Tony Hawkins, said RBZ must tighten monetary policy.

“ I am tired of so called analysts and the media parroting official claims of tight fiscal and monetary policies when all the published figures of 700% money supply growth and tenfold increase in government spending contradict them.

“The governor should walk the talk, period,” Hawkins said.

He stated in all monetary policies Dr. Mangudya pledged price and currency stability, but the result is one of the highest rates of inflation and weakest currencies in the world.

Dr Prosper Chitambara, another economist weighed in saying: “We expect the governor to maintain tight monetary policy and also consider fully liberalising the floating of the exchange rate.

“On its own monetary policy cannot do wonders but we want complementary between the monetary and fiscal policies. If the monetary policy isn’t tight or conservative the fiscal stance should also compliment that.

“In my view, fiscal policy is expansionary and that’s the reason why we are experiencing inflationary pressures.”

He added: “It’s very difficult to tighten the monetary policy given the structure of the government and it’s not an easy task for the governor. But with the current inflationary pressures, we need a tight monetary policy.”

According to another economist Tinashe Kaduwo, the RBZ ought to put in place measures that provide incentives for exporters.

“RBZ should come up with measures to incentivize exports as they are the primary source of foreign currency and local currency stability. Announce measures earmarked on unlocking new correspondent banking relationships for local banks. This may include among others strengthening the regulatory framework, providing incentives to foreign banks to establish correspondent banking relationships with local institutions including reduced fees, streamlined regulatory processes and other benefits,” Kaduwo said.