Vusumuzi Dube
Prosper Ndlovu
THE Reserve Bank of Zimbabwe (RBZ) has increased the bank policy rate from 20 percent to 35 percent with immediate effect, and capped at US$2 000 from US$10 000, the amount of foreign currency an individual can carry outside the country, as part of tough measures aimed at tackling resurgent exchange rate volatility and easing inflationary pressures.
RBZ Governor, Dr John Mushayavanhu, announced the measures on Friday, following the resolutions made by the Monetary Policy Committee (MPC).
He said the committee sat to deliberate on recent macro-economic and financial developments and economic outlook amid concerns over the depreciation of the local Zimbabwe Gold (ZWG) currency against the United States.
While the economy had experienced relative stability since the adoption of the ZWG in April up to mid-August 2024, the past few weeks have witnessed quick loss of value for the local unit, driven mainly by speculative parallel market forces, which President Mnangagwa said was tantamount to economic sabotage.
Whereas the official exchange rate has remained standstill at below US$1:ZWG14, black market rates had breached US$1:ZWG25, in some instances extending above US$1:ZWG30, resulting in businesses increasing prices beyond the reach of many, as others totally refused ZWG transactions in favour of forex.
To ensure that inflation expectations remain well anchored, as well as dissipate the latest inflationary pressures, Dr Mushayavanhu said the MPC has taken bold steps to restore sanity.
These include increasing the Bank Policy rate from 20 percent to 35 percent with immediate effect, which should go a long way in curbing money supply through loans, as well as slashing the amount of foreign exchange an individual can take out of the country, from US$10,000 to US$2,000.
The Central Bank has also resolved to increase and standardize the statutory reserve requirements for demand, and call deposits for both local and foreign currency deposits from 15 percent and 20 percent, respectively to 30 percent.
The statutory reserve requirements for savings and time deposits for both local and foreign currency have also been increased from five percent to 15 percent, with immediate effect, said Dr Mushayavanhu.
Going forward the Apex Bank has said it will “allow greater exchange rate flexibility”, in line with the increased demand for foreign currency in the economy.
“The MPC is convinced that the above measures will go a long way in addressing the emerging exchange rate risks, anchor the inflation expectations and stabilise prices in the near to short term,” said the Governor.
“Going forward, the MPC will remain vigilant to any emerging risks to ensure continued macroeconomic stability.”
The monetary policy gains since the adoption of the ZWG had seen month-on-month inflation averaging as low as 0.82 percent for the three months from May to July 2024.
However, from the second half of August 2024, resurgent exchange volatility ensued as reflected by the widening parallel market exchange rate premium, and the increase in inflationary pressures, said Dr Mushayavanhu.
Consequently, this has pushed monthly inflation up to 1.4 percent in August 2024, and is likely to be higher for September 2024, he added.
“The increase in parallel market exchange rate volatility is despite the increase in foreign currency inflows for the first 8 months to August 2024 of US$8,465 million, reflecting an increase of 13.4 percent, compared to US$7,468 million in 2023,” he said.
Online Reporter