RBZ retains interest rate Dr Mangudya

Nelson Gahadza-Senior Business Reporter

MINIMUM interest rates for borrowers remain at 130 percent a year as the Reserve Bank of Zimbabwe’s Monetary Policy Committee keeps the bank policy rate at that level, while reaffirming its commitment to continue with the tight monetary policy stance that has brought about the prevailing economic stability.

The bank said resolutions of the latest meeting of the committee sought to complement the recently announced fiscal measures in the national Budget for next year. 

The policy interest rate influences the evolution of the main monetary variables in the economy, including consumer prices, exchange rate or credit expansion, among others.

Both fiscal and monetary, the Finance Ministry and the Reserve Bank, instituted a plethora of measures to stabilise the exchange rate and reduce inflation, which is projected to end the year slightly below 20 percent.

It means the cost of lending in local currency terms will remain high, as the central bank looks to adjust lending rates in line with the level of inflation.

The bank said its MPC resolved to pursue a tight monetary policy stance to safeguard the prevailing macroeconomic stability and ensure that inflation expectations remained anchored in the short to medium term.

“Considering the prevailing macroeconomic environment, the MPC resolved to maintain the current bank policy rate at 130 percent and the medium-term bank accommodation facility interest rate for the productive sector, including individuals and MSMEs, at 75 percent, which rates will be reviewed in line with inflation developments from time to time,” said RBZ Governor Dr John Mangudya in a statement.

The MPC met on Friday last week and deliberated on the recent macroeconomic developments in the country and the 2024 national Budget presented on November 30, 2023.

Dr Mangudya said the committee also recommended that the Government extend the fiscal and non-fiscal incentives for foreign direct investments to diaspora investments in the country, given the importance of diaspora remittances in the economy.

According to the Monetary Policy Committee, foreign currency inflows increased by 2,3 percent to US$9,44 billion as of October 31 this year, compared to US$9,23 billion generated during the same period in 2022, demonstrating the currency generation capacity of the country.

Dr Mangudya said the foreign currency inflows have been supported by diaspora remittance inflows, which have consistently surpassed foreign direct investment, portfolio investment, and official development assistance since 2009. 

“Diaspora remittances alone contributed 16 percent of the country’s foreign currency inflows as of October 31, 2023. Thus, the MPC underscored the need to leverage diaspora remittances for development as part of a broader package of measures to cushion the economy from recurring global shocks,” he said.

The committee noted that the requirement by the Government in June that companies settle an increased proportion of tax obligations on quarterly payment dates in local currency had created the much-needed demand for local currency, which is critical to sustaining exchange rate and inflation stability.

“The MPC underscored the need for the Government to continue increasing the proportion of taxes settled in local currency to sustain the optimal mix of dual currencies,” he said.

Among the measures that achieved the desired stability was the value for money, which scrutinised all invoices for Government work to make sure payments reflected the correct prices in the market, which limited the flow of excess liquidity into the market, which had put pressure on the exchange rate.

The measures were also aimed at instilling discipline and curbing speculative behaviour, targeting the exchange rate and the broader macro-economy.

In addition, the Reserve Bank, on its part, hiked bank policy rates from 80 percent to 200 percent at that time, aimed at reducing speculative borrowing and stabilising the exchange rate.

Gold coins were introduced as an alternative investment, helping to mop up excess liquidity in the market.

According to RBZ, the introduction of the wholesale foreign exchange auction, on the back of the recent liberalisation of the exchange rate, saw the parallel market premium decline from a peak of over 140 percent in May 2023 to around 35 percent in November 2023.

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