• MPC maintains current interest rates
  • Bank policy rate to be reviewed in 2023
  • Forex retention thresholds on exports and domestic FCAs to be adjusted in 2023

The resolutions of the RBZ’s Monetary Policy Committee (MPC) held on the 2nd of December 2022 comes at a time when the economy is beginning to witness a rise in the parallel market rate, which is now averaging between ZW$900/ZW$950 to the greenback a sudden increase from ZW$750 a few weeks ago, despite recording a slow growth in the general price level which stood at 1.8% in November from a peak of 30.7% in June this year. Given the sustained fall in month-on-month inflation over the past three months, one would expect the RBZ to marginally loosen its monetary policy stance which has remained firm since July this year.

Having reviewed the macroeconomic environment, the MPC will maintain the current bank policy and medium-term lending rates at 200% and 100%, respectively, with room for review in the first quarter of 2023 subject to inflation trends at the time. This is in spite of economy-wide outcry regarding the prevailing high borrowing costs which, according to businesses, have severely affected profitability, consumer spending and working capital positions. Of interest, data from the latest Confederation of Zimbabwe Industries (CZI) business and economic intelligence survey for third quarter 2022 reveal that loans and advances by the banking sector continued to rise over the period despite the rise in interest rates by the central bank.

However, the sustained position on the bank policy rate by the RBZ is justifiable despite falling inflation. Central bank actions have a relatively larger outside lag (the amount of time it takes for either fiscal or monetary policy to have a noticeable effect in the economy) compared to fiscal policy, which is estimated to be about 6 months. The witnessed sustained decline in monthly inflation over the past few months is a result of several policy actions, including the introduction of gold coins which are said to have mopped up close to ZW$15 billion since their inception coupled with the value for money approach by the ministry of finance in regards to payments to contractors, which makes it difficult to account for individual effects of the said policies on various economic variables, particularly inflation. Therefore, it may be too early for the central bank to relax its monetary policy stance. On the contrary, it can be argued that monetary policy tends to be ineffective in a multi-currency regime given that the RBZ has only instituted a tight monetary policy on the Zimbabwe dollar leaving room for rational economic agents to resort to USD credit as a means to circumvent the policy position on ZWL.

The Bank has further committed to enhance its support to the productive sectors of the economy, in line with government vision to achieve an upper middle income economy status by 2030, by increasing the Medium-Term Lending Facility to ZW$20 billion in 2023 from the current limit of ZW$10 billion. In addition, in the coming year the Bank aims to improve foreign exchange efficiency through reviewing forex retention thresholds on exports and domestic FCAs.

In the outlook, the tense global geopolitical position coupled with planned OPEC production cuts will impart considerable levels of uncertainties to inflation on the local front through imported inflation.