RBZ tackles speculative borrowing in new market stabilization measures
Nevanji Munyaradzi Chiondegwa
The Reserve Bank of Zimbabwe has increased interest rates, in a bid to arrest an arbitrage bubble which had formed in the economy, after unscrupulous individuals and entities had found a way to finance parallel market activities through loans.
This was forcing instability on the exchange rate and playing a part in the recent inflation witnessed in the economy.
Key voices in the economy have started trying to organize for a response to the current state of the market.
Last week, the Political Actors Dialogue (POLAD) called for a currency indaba, where ideas on how to increase confidence in the local unit were discussed.
Parliament also asked questions to the Ministry of Finance and Economic Development, in execution of the oversight mandate.
The recent spike in inflation which rose to 30.7% for the month on month inflation for June leading to a 191.6% year on year inflation has the Reserve Bank of Zimbabwe Monetary Policy Committee worried.
In a statement, Reserve Bank Governor Dr John Mangudya said the MPC is seized with trying to find a way to address inflation.
On June 24, the MPC met for their routine meeting and inflation dominated the agenda.
Dr Mangudya said, “The MPC expressed great concern on the recent rise in inflation, which increased to 30.7% on a month-on-month basis for June 2022 thereby increasing the year-on-year inflation for June 2022 to 191.6%. The Committee noted that the increase in inflation was undermining consumer demand and confidence and that, if not controlled, it would reverse the significant economic gains achieved over the past two years.”
The MPC also deliberated on progress made in the implementation of measures announced by President Mnangagwa on May 7.
It was heard that the auction and the willing-buyer-willing-seller foreign exchange rates have since converged.
To slow down the trend and reverse it, the MPC resolved to put in place the following measures to align the interest rates with the inflation developments, enhance circulation of foreign exchange and introduce an investment instrument to assist holders to store value in gold coins.
The MPC reviewed interest rates and statutory reserves with effect from July 1 2022 as follows; increasing the Bank policy rate from 80% to 200% per annum.
The MPC also resolved to increase the Medium Term Accommodation interest rate from 50% to 100% per annum, increase the minimum deposit rate for ZW$ savings from the current 12,5% to 40% per annum and increasing the minimum rate for ZW$ time deposits from 25% to 80% per annum.
The MPC resolved to maintain the Statutory Reserve Requirements at the current levels of 10% for demand and call deposits and 2.5% for savings and time deposits.
The MPC also deliberated on the liquidation of unutilised Retained Export Receipts in order to enhance the circulation of foreign currency in the economy as well as to support the willing-buyer willing-seller foreign exchange market.
The MPC resolved to maintain the current export retention thresholds across the various sectors of the economy and that 25% of the unutilised export receipts shall be liquidated at the willing-buyer willing-seller exchange rate after 120 days from the date of receipt of the export proceeds.
There has also been an introduction of Gold Coins as a Store of Value.
The MPC resolved to introduce gold coins into the market as an instrument that will enable investors to store value.
The gold coins will be minted by Fidelity Gold Refineries (Private) Limited and will be sold to the public through normal banking channels.
Having noted the widespread use of forward pricing in foreign exchange by some economic agents, the MPC resolved that mechanisms to formalise forward pricing arrangements should be created through the development of a market for forward exchange rates.
The appropriate measures in this regard will be announced in due course.
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