Zimpapers Logo

Golden Sibanda Senior Business Reporter
Zimbabwe can expect a more stable exchange rate and prices going forward after the Reserve Bank of Zimbabwe (RBZ) froze bank accounts holding idle funds that were being used to speculate on currency. The frozen accounts held about $1 billion paid from Treasury Bill maturities and the money was being used to buy foreign currency on the market in a manner that caused exchange rate instability.

The accounts include but are not limited to those for Sakunda, Spartan Security, Croco Motors and related companies, which were frozen last month by the bank’s Financial Intelligence Unit (FIU).

Authorities said yesterday that the funds had since been “sterilised”, meaning they can no longer be used for speculative currency buying, which caused the run on the exchange rate and stocked inflation.

A high exchange rate drove prices in the imports-dependent economy given the rate’s cost implications on imported products at a time Zimbabwe is facing industrial and agricultural production challenges.

The speculative currency buying, which was rife on both formal and informal markets inadvertently drove the domestic currency exchange rate run and exerted pressure on prices as well as inflation.

This had seen Zimbabwe’s annual inflation skyrocketing from 5,39 percent in September last year to about 175,5 percent when official yearly inflation figures were last announced for June this year.

Publication of annual inflation has been suspended until February next year, following currency changes in February and June, to allow like-for-like comparison of pricing trends based on domestic currency induces.

Inflation is projected to fall in the outlook, with the monthly rate dropping from 39,26 percent in June this year to 18,07 percent in August and 17,72 percent in September. The figure is seen at 10-12 percent by year-end.

RBZ governor Dr John Mangudya said at a briefing with media and bank executives in Harare after the bank’s first Monetary Policy Committee (MPC) meeting this week that the idle funds had been sterilised.

“We have addressed the speculative tendencies that came with the increase in money supply; the reserve money. The money that increased due to increases in reserve money; we have sterilised it here at the bank.

“In other words, the money that caused the increase in the exchange rate and therefore inflation; we have sterilised it and that is some of the money that we are going to redeploy for the agricultural sector this year.

“That we have addressed, as the MPC, we deliberated on the matter extensively and came to the conclusion that we are satisfied with sterilisation of that money. Sterilisation is mopping of money from the market and putting it at the central bank to remove its effect of causing other havocs on the market.

“The foreign exchange generating capacity of this economy is still sufficient to support a stable exchange rate. This is also reflected in the projected narrowing of the current account deficit to 1,5 percent by year end,” he said.

Dr Mangudya also said only 50 corporates hold half the total banking sector deposits of $19 billion and were behind money market activities that were hurting the domestic currency introduced in February this year.

“So, 50 corporates account for 50 percent of the deposits in this country.  Fifty percent of that $19 billion is in the hands of 50 corporates. It means we are predominantly poor because the rest of the people own the other 50 percent of the deposits.”

Dr Mangudya said the central bank and the MPC had taken note of the irregularities, adding it is “very easy for us to monitor the movements of money in those accounts because they are not too many”.

The central bank chief said measures had been put in place to contain money supply growth, which has already expanded by 80 percent since January, within the 50 percent band by the end of this year.

The exchange rate weakened to US$1 to $15,6 from US$1 to $2,5 when the exchange rate was liberalised and interbank market introduced in February, but the RBZ says it should be around US$1 to $5-$8.

Dr Mangudya said the economy, which has generated US$5,7 billion since the beginning of the year, and registered US$1,3 billion trades on the interbank market, had capacity to sustain a low exchange rate.

Economist and MPC member Mr Eddie Cross said the Government and central bank had frozen the accounts to hold the cash used to buy foreign currency, which will stop the run on the exchange rate and help stabilise prices.

“What happened was that certain Treasury Bills that were due, were paid out and this resulted in a massive injection of liquid currency into the market and the beneficiaries of that payment started buying foreign exchange on the market and that drove the (exchange) rate up,” Mr Cross said.