The efficacy of tight monetary policy stance

Persistence Gwanyanya

THE tight monetary policy stance by RBZ is driving stability in the market.

Whilst there may be concerns by the market about what seems to be over-tightening, it is arguably necessary to build credibility in ZiG.

Principles of money teaches us that its value drives from its scarcity; more so in situations where market participants are inclined to disposing of the currency at every opportunity.

Clearly, there is need to restore the characteristics of money in our local currency, which calls for some extreme measures, and tightening is one such.

With continued increase in demand for ZiG, mainly from Government, and improved performance of the real sector economy, permanent stability is possible.

It is comforting that ZiG has been stable over the last quarter of the year, which is the most volatile period for the economy.

This gives us hope of permanent stability in 2025 and beyond.

The progressive increase in international reserves, which are now more than total ZiG money supply, will continue supporting ZiG convertibility.

At ZiG13,6 billion, our reserves exceeded total local currency deposits in the banking sector, which stood at ZiG12,9 billion in November 2024.

The improved rainfall patterns from the last week of December gives us confidence of a better agricultural season.

As such, we see the month-on-month inflation target of 3 percent and year-end inflation projection of 20-30 percent as achievable.

All we need is to stay the course of tight monetary policy and conservative fiscal policy stance.

However, there may be need for monetary authorities to continuously monitor the market for unintended consequences.

This could be the reason for the Targeted Finance Facility (TFF), which is meant to minimise occurrence of market grid locks on account of over-tightening

Where there may be need to ease pressure in the market and drive growth, we expect monetary authorities to intervene, without deviating from the tight monetary policy stance.

*Persistence Gwanyanya is the CEO of Bullion Group International and a member of the RBZ Monetary Policy Committee. For feedback email: [email protected]