RBZ stays course with Monetary Policy Statement

by | Feb 11, 2022 | Business, Local News | 0 comments

Nevanji Munyaradzi Chiondegwa

Reserve Bank Governor Dr John Panonetsa Mangudya has true to the wisdom of not changing a winning formula, stuck to existing policies with the latest monetary policy announcement.

The Monetary Policy Statement (MPS) is issued in terms of Section 46 of the Reserve Bank Act (Chapter 22:15) which requires the Governor of the Reserve Bank of Zimbabwe (the Bank) to issue a statement outlining the monetary policy stance for the subsequent six months, the reasons for the policies and an evaluation of the previous period monetary policy measures.

In response to the current inflationary pressures within the national economy, the Bank further tightened the monetary policy to stem exchange rate volatility and anchor inflation expectations, whilst at the same time safeguarding the ongoing recovery of the economy.

To achieve this, the Bank put in place measures to curb inflationary pressures, stabilise the exchange rate and support the recovery of the economy from the effects of the Covid-19 pandemic.

The first of the measures by The Bank is to review downwards the quarter-on-quarter reserve money target from 10 per cent down to 7.5 per cent for the quarters ending March and June 2022, which target will be reviewed thereafter.

“The revised quarterly reserve money growth target is consistent with the envisaged economic growth rate of 5.5% in 2022 and the expected year-end inflation of 25-35 %.,” said Dr Mangudya as he announced the MPS.

The second measure by the Bank will be to continue with its aggressive liquidity management policy by aligning its Open Market Operations (OMOs) to liquidity injections by Government to avoid excess liquidity in the banking system emanating mainly from payments for infrastructural development projects.

To avoid further build-up on inflationary pass-through effects currently emanating from exchange rate indexation and the elevated global inflation pressures, the Bank policy rate and the Medium Term Accommodation (MBA) Facility, interest rate will be maintained at the current levels of 60 per cent and 40 per cent respectively.

“The Bank, through the
Monetary Policy Committee (MPC), will continue monitoring monetary and financial conditions and their implications on interest rate policy for possible future adjustments,” said the Apex Bank Chief.

True to staying the course and maintaining the positive scores, the Bank shall also maintain statutory reserve requirements for demand/call deposits and savings and time deposits at current levels of 10% and 2.5%, respectively, to promote savings and time deposits, while discouraging unproductive credit creation.

The fifth and final measure by the Bank shall be to continue to fine tune the exchange rate policy which is premised on the foreign exchange auction system to focus on exchange rate flexibility and promotion of external competitiveness as well as tackling rent-seeking behaviour.

On local Zimbabwe Dollar currency usage and the positives emanating from it, the RBZ Chief said,
“The current system in the country, where local currency, the Zimbabwe dollar, is used as a functional currency together with foreign currencies for payment for goods and services is ideal for promoting growth and competitiveness of the economy. The use of the local currency has helped the economy to grow by 7.8 per cent in 2021 following an increase in local currency backed aggregate demand that was necessitated by increased agricultural output and expansion in government infrastructural projects.”

He continued, “The Bank is putting in place the following additional measures to support and promote the use of the local currency in the country.”

1. Increasing foreign exchange availability to fuel service stations designated by the Zimbabwe Energy Regulatory Authority (ZERA) to sell fuel in local currency.

2. Maintaining minimum deposit rates for savings and time deposits at 10 per cent and 20 per cent, respectively, to preserve value for local currency deposits.

3. Building foreign exchange reserves to provide the necessary back-up support for the local currency to enhance its attractiveness through setting aside 5 per cent of the foreign exchange available for the auction system.

4. Increasing the limit on mobile banking transactions as follows: –

i. Person to business from ZW$20 000 to ZW$25 000 per transaction with a maximum limit of ZW$100 000 per week; and

ii. Person to person from ZW$5 000 to ZW$10 000 per transaction with a limit of ZW$70 000 per week.

5) Increasing the cash withdrawal limit for the banking public from ZW$2000 to ZW$5000 per week.

He further said, “The Bank availed the US$50 Facility to assist members of the public to access foreign currency for small domestic purchases and payments at the official exchange rate through bureaux de change which are allowed to charge up to 10 per cent over the cost of funds. The Bank, has however, noted, with concern the abuses of this Facility by some members of the public.”

“In this regard, the Bank is refining the US$50 Facility, with immediate effect, to limit it to the vulnerable members of the society, that is pensioners, senior citizens, people living with disability and those requiring forex for medical purposes”.

He also announced that on account of the high import requirements embedded in the manufacturing, horticulture and cross-border transport sub-sectors of the economy, with immediate effect, exporters in the manufacturing, horticulture and cross border transport sub-sectors shall be eligible to retain 100 per cent of the incremental portion of their export receipts.

He added, “The export base for these sub-sectors have also been refined to incorporate their high import requirements.”

Speaking on tobacco and cotton, Dr Mangudya said,
“The financing models for tobacco and cotton require a refinement of the export retention threshold to increase participation by small scale growers and to boost tobacco and cotton production in the country. Accordingly, the retention threshold for tobacco and cotton growers shall be increased to 75% for the forthcoming tobacco and cotton marketing seasons. The funds retained by the growers shall continue to be treated as free funds.”

He also said that, “Tobacco merchants will retain 80 per cent on the portion of the incremental value addition repatriated into the country and 100 per cent of proceeds from local sales of tobacco through inter-merchant sales”.1

There was also good news for players in the tourism sector from the Governor. In response to the adverse effects of COVID-19 on the tourism sector, which was hard-hit by the pandemic not only in Zimbabwe but the world over, with immediate effect, players in the tourism and hospitality industry shall retain 100 per cent of their foreign currency earnings to allow them to quickly recapitalise and procure the necessary goods and services required by tourists and travellers.

On inflation, the Governor said month-on-month inflation is expected to be reduced to below 4% in the first quarter of the year and to average below 3 per cent in the second half of 2022. This path is expected to reduce the country’s annual inflation rate to a range of 25-35 per cent by end of December 2022.

“The Bank strongly believes that exchange rate and price stability is achievable under the current monetary policy stance which is supported by a complementary fiscal policy. Further decline in inflation will go a long way in preserving the value of local currency as well as increasing the demand for local currency and minimising appetite for quick conversion of local currency into foreign currency”.