Golden Sibanda Senior Business Reporter
THE Reserve Bank of Zimbabwe (RBZ) says it will use various open market operation tools to deal with uneven distribution of money in the economy amid indications 50 percent of total bank deposits are concentrated in the hands of only 200 corporates.
Critically, the central bank said doing so was important to counter potential hazards such as speculative currency trading, which have potential and risk of upsetting exchange rate stability and consequently, drive inflation.
The bank and Treasury are targeting annual inflation rate of around 50 percent and monthly rate lower than 5 percent by end of this year.
The monthly rate for January currently stands at 2,2 percent from 16,55 percent in December 2019.
The planned measures come against the backdrop of speculative currency trading on the parallel market by cash rick firms, largely considered to be the main cause of exchange rate volatility, which has led to sustained increases of exchange rate indexed prices.
Presenting the 2020 Monetary Policy State Statement to bank executives, economic analysts and the media in Harare yesterday, RBZ Governor Dr John Mangudya said the level of liquidity as measured by banking sector deposits stood at $34,5 billion as at December 2019.
Dr Mangudya said the bank deposits are made up of $22 billion local currency and the balance is in foreign currency, US$785 million, representing about 36 percent of the total amount of money currently in circulation.
The central bank chief said as the country’s monetary authorities, they will be focusing on managing this stock of money to ensure that it does not cause inflation and or bring volatility to the exchange rate.
“Focusing on liquidity management becomes critical especially the context under which around 50 percent of this $34,5 billion is concentrated on only 200 entities, whilst the majority of the Zimbabwean population is struggling to make ends meet in an economy with a huge output gap,” Dr Mangudya said.
The cash holding levels, Dr Mangudya said, range from about $2 million to $1,8 billion per individual entity. He said the bank would use moral suasion to entice the owners to invest the funds in the various securities.
The RBZ governor said the bank was committed to the full implementation of the monetary policy targeting framework to regulate the amount of money supply in the economy to align it with the desired inflation and exchange rate levels.
“This framework will be operationalised through the use of open market operations tools like Treasury Bills, savings bonds, corporate bonds, statutory reserves and specific management instruments to deal with uneven distribution of money in the economy,” he said.
Similar interventions to control money supply growth have seen the apex bank coming up with a savings bond, which had investments valued at $1,9 billion, as at December 31, 2019, from $2,2 billion 12 months earlier.
The need to maintain the right level of money supply also made the bank to set statutory requirements thresholds for banks, which stood at a combined $918 million as at December 31, 2019 from $401 million a year ago.
Measures to avoid market activities that hurt the Zimbabwe dollar follow its reintroduction and floating on the interbank market last year, as part of wide ranging reforms under the Transitional Stabilisation Programme (TSP).
The exchange rate has since increased from 2,5 to the US dollar in February last year to about 17,5 to the greenback. Tied to that, annual inflation vaulted from 5,39 percent in September 2018 to 175,6 percent by June 2019.