RBZ maintains  lending rate at 35pc Reserve Bank Governor Dr John Mangudya

Golden Sibanda, Senior Business Reporter

THE Reserve Bank of Zimbabwe (RBZ) last week maintained the key overnight bank accommodation rate at 35 percent, reflecting the level at which the central bank believes interest rates should hover.

Analysts, however, say for short-term loans the 35 percent overnight bank accommodation rate is on the high side and would only be close to the ideal level if banks were extending long to medium-term loans.

Banking institutions are lending mostly between 45 and 25 percent, for individual and short-term loans, while others quote interest rates just below the industry benchmark rate, specifically for corporate loan facilities.

The overnight accommodation rate is the interest rate at which banks lend to each other to cover overnight or daily shortfalls and serves as the industry benchmark of where banks’ lending rates in the money market should be.

Government hiked the overnight accommodation rate from 15 to 50 and then 70 percent late last year to discourage speculative borrowing and protect the value of the local currency following its floating on the interbank market for the first time since 2009.

The RBZ then cut the bank rate from 70 to 35 percent as part of its efforts to promote lending to productive sectors.

To avoid suffocating productivity, the RBZ last week said it had intervened in the market to provide nearly $1 billion for productive sectors. A positive inflation outlook played a part in the bank’s decision to leave the rate at 35 percent.

“The interest rate on the medium-term bank accommodation (MBA) facility shall continue to reflect the yield on the Treasury Bills auction rate, which is currently at between 15 to 18 percent,” RBZ governor John Mangudya said.

The central bank chief said the monetary policy committee emphasised that access to the MBA window crucially depends on the quantum of medium and long-term productive lending undertaken by banking institutions.

Notably though, banks have not been as aggressively giving medium-term loans due to high inflation, which peaked to post dollarisation high of 175,6 percent in June last year while the monthly rate peaked at 38 percent in April that year.

However, some analysts believe that the interest rates guiding benchmark remains too high given that it provides a window into the central bank’s preferred lending rates at a time most are predominantly short-term.

Economist and Zimbabwe Chamber of Commerce chief executive Takunda Mugaga said banks see rates above 35 percent as not abnormally inappropriate because of the prevailing inflationary economic environment.

“The argument is that 35 percent will push banks to raise their cost of credit above 35 percent since it’s the benchmark rate, which would be an unintended consequence and most banks are not reading into it,” Mr Mugaga said.

“We have the absence of a robust money market in Zimbabwe and so such a reference rate like 35 percent may not be quite reflective of that inflationary environment due to the absence of an active money market,” he added.

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