Little expected from MPS Dr Dhliwayo
Dr Dhliwayo

Dr Dhliwayo

Walter Muchinguri and Martin Kadzere
CO-acting Reserve Bank governor Dr Charity Dhliwayo is expected to present the 2014 Monetary Policy Statement (MPS) this morning and analysts believe it will dwell much on regulatory matters since the RBZ does not have capacity to influence financial markets.
The MPS comes at a time when the financial sector is struggling in the face of challenges that include under-capitalisation of some banks, increasing non-performing loans, absence of an inter-bank market, market illiquidity resulting in failures to meet customer RTGS instructions, limited lending, high lending rates and lack of confidence.

It also comes at a time when the economy is faced with a myriad of crippling impediments that have eroded the gains made since the adoption of the multi-currency regime.

The last MPS was presented in January last year by former RBZ governor Dr Gideon Gono.
The Mid-Year Policy Statement was postponed due to the harmonised elections held on July 31.

Without the pre-requisite financial muscle, the central bank remains constrained in its capacity to influence the economic trajectory with such tools as interest rates, money supply and inflation.

“For now I believe the Reserve Bank does not have monetary capacity since it cannot print money, which means it cannot influence financial markets, therefore I think the acting governor will expound on what the Finance Minister said in relation to capitalising the bank first before it can be able to influence activity on the financial market,” a Harare-based economic analysts Mr Brains Muchemwa said.

“I therefore believe the policy statement will dwell more on regulatory matters since for now the bank cannot implement interventions that will influence the market,” he said.

As a first step towards recapitalising the central bank, the Government has already taken over its US$1,35 billion debt. The debt would be paid through issuance of Treasury Bills (TBS) to banks that were levied by the RBZ.

This will be subject to the understanding that the banks will immediately settle small amounts owed to non-corporates of US$500 and below, without waiting for the maturity of the TBs. The TBs will have two-five year tenure as reflected in the accounts sitting with the affected banks.

The proposed interest rate for these instruments is between 3,5 percent and 5 percent per annum.
Analysts say the central bank should renew the Memorandum of Understanding it signed with banks in January last year, which will put a cap on rates. The MOU expired in December and was not renewed.

Under the MoU, banks agreed to reduce lending rates, scrap bank charges and pay interest on deposits among other reforms.
The MoU — which came into effect a month later, required, among other things, that lending rates be capped at 12,5 percent, above each respective bank’s weighted average cost of funds.

The institutions were also ordered to charge up to 0,5 percent of cash withdrawal amount subject to minimum charge of US$2,50 while ledger fees, maintenance and service fees will cost up to US$4 per account.

The central bank and bankers also agreed to push for the mandatory use of debit cards.
“Vulnerabilities across the banking sector are also an issue warranting address from the monetary authorities in light of the recent storms that some local banks have been subject to, (and) also related is the future of the expired MoU which was signed by the former governor and banking institutions,” said FBC analyst Mr Albert Norumedzo.

He said in light of the prevailing economic stagnation, the question of whether capitalisation deadlines for the financial institutions would be extended also warrants an “ear”.

Progress on the proposed US$100 million injection into the interbank market by the Finance Minister in his Fiscal Policy Statement is a decent expectation from the MPS.

Another economic analyst Dr John Robertson said he expected the monetary policy to address the financial problems in face of the shrinking money supply.

“We also expect the policy statement to address the loss of revenue due to the growing influx of imported goods into the country,” he said.

“Of late the country has not been exporting, which is one of the issues that can boost the revenue base for a country. The monetary policy should suggest the recovery strategy for the companies that are closing through attracting investment.

“It should highlight how best the country can attract investment considering that Zim-Asset (Zimbabwe Agenda for Sustainable Socio-Economic Transformation) has projected a 3,5 percent manufacturing sector growth by 2014.”

He added that the statement should highlight the banks that are in a bad position, and outline the available strategies to ensure that those banks are fully recapitalised.

It should also come out with detail that will keep on instilling depositor confidence in the banking sector.
Minister Chinamasa has already admitted that there were challenges in the sector and that there was need to restore confidence through a raft of measures.

“Unlike during the period preceding the multi-currency system when the Reserve Bank still had a lot of influence on the liquidity available in the country, the current environment requires that the country earns whatever liquidity it needs. The strategy to restore confidence in this sector would need to be done, not haphazardly, but on a sequential, methodical and systematic basis,” he said.

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