RBZ raises bank policy rate to 150% as inflation rises

BUSINESS REPORTER

The Reserve Bank of Zimbabwe (RBZ) has raised the bank policy rate to 150% per annum from 140% among a cocktail of measures to stem a rise in inflation and protect the country’s weakening currency.

Annual inflation, which has been heading south over the months, bucked the trend in May, rising to 86.5% from 75.2% in April.

The 10 percentage point increase in the bank’s policy rate comes after the central bank’s Monetary Policy Committee (MPC) meeting on Tuesday.

The MPC also resolved to increase the medium term bank accommodation interest rate to 75% from 70% per annum. It also increased the statutory reserve requirements on local currency demand and call deposits to 15% from 10% while maintaining savings and time deposit requirements at 5%, RBZ governor John Mangudya (pictured) said on Tuesday.

As part of the supply side measures, RBZ shall be selling foreign currency at the market-determined exchange rate through banks to support and strengthen the foreign exchange interbank market. Banks shall in turn sell the foreign currency to their customers.

“This measure is calculated to ensure that the interbank forex market is the primary source for foreign exchange needs in the economy and that the foreign exchange auction system shall continue to operate for meeting smaller requirements for foreign payments and for continuous price discovery,” Mangudya said.

RBZ, he said, has removed the 90-day liquidation requirement on export proceeds to ensure that the interbank forex market is “self-financing’.

The interbank maximum trading limit was raised four-folds to US$500,000 from US$100,000. The main and MSME auctions would be merged under the US$5m per week policy, with bid limits of a minimum of US$1 500 and a maximum of US$50,000.

The measures announced on Tuesday come after interventions by the Treasury which ended the central bank’s quasi-fiscal activities in a bid to contain money supply growth, blamed for the weakening of the local currency.

Critics say the actions by authorities is akin to closing the stables while the horses have already bolted with the US$ trading above ZWL$5000 this week on the parallel market. It also raced to ZWL$3,673.7718 on the auction market from ZWL$2,577 last week

 

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