RBZ to keep tightening monetary policy

CLOUDINE MATOLA

 

The Reserve Bank of Zimbabwe (RBZ)’s Monetary Policy Committee (MPC) has resolved to continue tightening  the monetary policy for a while in order to preserve the prevailing economic stability, Business Times can report.

According to John Mangudya, the central bank governor and MPC chair, the move will also ensure that inflation expectations remain stable in the short to medium term.

“Overall, the MPC remained committed to pursuing a tight monetary policy stance to safeguard the prevailing macroeconomic stability and ensure that inflation expectations remained anchored in the short to medium term,” Mangudya said.

Multiple industry  leaders and analysts applauded the move, stating that while it will help reduce economic volatility, more extensive policy intervention was required to support long-term solutions.

“Following the rise in global, regional and domestic inflationary pressures, due to global events such as rising food costs and currency weaknesses especially in emerging markets, most central banks adopted and maintained tight monetary policy stances characterised with high central bank policy rates as part of measures to thaw inflationary pressures and reduce currency volatilities,” Bankers Association of Zimbabwe president Lawrence Nyazema told Business Times.

However, Nyazema , who was appointed acting Group CEO of CBZ Holdings this week following the departure of Blessing Mudavanhu,  warned that in order for the tight monetary policy to have a lasting impact, it must be supplemented with more extensive legislative and fiscal policy interventions given the increased risks to the macroeconomy in the coming year, including the anticipated El Nino and falling  commodity prices in the global market.

“There is evidently going to be an increase in risks to the macro economy going into 2024, among them risks from the projected Elnino effect in agriculture and the weakening commodity prices on the international markets which have an impact on the inflation and exchange rate outlook,” Nyazema said.

Kurai Matsheza, president of the Confederation of Zimbabwe Industries, said the macroeconomic environment will stabilize as a result of the strict monetary policy.

He said it will reduce the liquidity that drives exchange rates on the black market.

“For sure it will discourage Zimbabwe dollars borrowings and limit the liquidity driving the parallel market rates. These measures have got to be complimented with a tight money supply,” Matsheza told Business Times.

He added: “When you read that statement together with inflation figures from ZIMSTATS, there seem to be disconnect unless the inflation figures being published reflect the over 80% dollarization of the economy. We would have expected the interest rates to be coming down in line with inflation trends,” Matsheza said.

The MPC decided to maintain interest rates at 130%.

According to economist and banker Brains Muchemwa, the current stability in the economy is a result of the dollarization of the economy; therefore, tight monetary policy is required to control the value of the Zimbabwean dollar, which drives inflation.

“The economy on account of the widespread dollarization is exhibiting encouraging signs of stability and it becomes important to keep the tight monetary policy in order to reign on the Zimbabwe dollar side of the economy that has strong inflationary pressures,” Muchemwa said.

According to economic analyst Victor Bhoroma, a strict monetary policy will lessen the fictitious demand for the greenback on the official and underground markets.

“Stability is not entirely a result of policy. It is a mere function of a stable currency in use as the economy is now dollarized. A tight monetary policy helps in reducing artificial demand for United States dollars on the official and parallel markets,” he said.

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