Zim maintains tight policy stance

LIVINGSTONE MARUFU

Zimbabwe is maintaining a tight monetary and fiscal stance to stabilise the economy, central bank chief John Mangudya said yesterday, despite calls by business leaders to soften the policy measures.

Mangudya said authorities were putting in place supportive infrastructure or policy to ensure that the economy remains stable and it was too early to soften the stance.

“It’s too premature to soften the policy because we believe that this economy is about sentiments and perception therefore we are going to continue with the tight monetary policy stance,” he told Business Times on the sidelines of the Mining Industry Report launch.

Mangudya’s remarks come as banks have warned that a tight policy stance would derail economic growth as it restricts lending to productive sectors of the economy.

The central bank chief was adamant there won’t be any reversal of policy warning a “few unscrupulous dealers” resisting the policy measures that they would be dealt with.

“We are going to continue with the tight monetary policy stance to ensure that the value of our local currency is maintained and that people will choose to use either of the two currencies,” he said.

Before the new measures that include the hiking in bank policy rate, Zimbabwe was experiencing the sharpest and most prolonged resurgence of inflation since July 2020 when it peaked at 837%.

Zimbabwe’s annual consumer price inflation eased for the second straight month to 268.8% in October, from 280.4% in the prior month following tight monetary measures implemented by the government and monetary authorities.

“We can talk about forex inadequacy and inaccessibility but the permanent solution for our economy lies in stability. When our economy is stable and inflation is stable people will use both currencies,” Mangudya said, adding that forex would never be sufficient “even during Rhodesian times”.

He said the government would continue with the value for money in its procurement processes to ensure that there is no excess money that will go into the economy as we move to stabilise inflation and exchange rate.

Recently, Finance and Economic Development Minister Mthuli Ncube said the government would maintain a tight fiscal stance to achieve stability.

“Macroeconomic stability is going to remain a priority for the government through exercising fiscal restraint and we will maintain that stance until a time when we see that economic stability is achieved,” Ncube said.

“We have seen cooperation from the private sector and other stakeholders by exercising restraint from desisting from forward pricing and we are almost achieving convergence of both parallel and official exchange rates,” Ncube said.

This week, the Zimbabwe dollar was trading at ZWL$636.37:US$1 on the official market, while on the parallel market, it was trading at ZWL$750: US$1.

The government believes it will converge in the coming weeks.

The government recently introduced several policy measures in response to domestic currency depreciation and inflationary pressures.

In addition to tightening the monetary stance, the Reserve Bank of Zimbabwe increased interest rates to 200% from 80% to curb speculative borrowing.

The central bank also introduced gold coins to mop up excess liquidity in the market.

Since the introduction of the gold coins, the authorities have mopped out close to ZWL$9bn from over 10 000 gold coins and this has left the market with limited local currency.

“I am advising you that starting November 15, the smaller denominated gold coins will be released into the market.

“A tenth, quarter and a half will be on sale on Tuesday and we are going to be taking them to the banks on Friday and Monday but the public will be buying them on Tuesday.

“We took to the cognisant that the bigger denominated coins were elitist hence we are bringing the smaller denominations,” Mangudya said.

On the other hand, the Treasury has been battling supply shocks and was forced to review suppliers’ contracts and procurement processes by the institution of value-for-money audits to prevent forward pricing and speculative behaviour also helped to contain the exchange rates.