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2020 Monetary Policy Statement: What We Learnt


This morning the Reserve Bank of Zimbabwe (RBZ) governor, Dr John Mangudya presented the first half, 2020 Monetary Policy Statement (MPS) amid huge expectations for remedies to soothe the increasingly anxious financial market.

However, as expected the governor presented much of what the Monetary Policy Committee (MPC) has already been pre-empting in its monthly updates recently.

Nevertheless, there were some little marrow left for us to digest.

First, the shocking revelations that just 200 entities hold 50 percent of total bank deposits in the country is enough to conclude where the root of exchange rate manipulations emanates from.

This means that out of the total ZWL$ 34.5 billion bank deposits, 200 entities hold about ZWL$ 17.25 billion at a time the entire economy is experiencing liquidity constraints.

But what we digest from this is that despite the RBZ pointing out these anomalies in the economy, the Bank has proved time and again that it is unable to redress this challenge bearing in mind Dr Mangudya also revealed late last year that 50 companies then, held half of total deposits.

So what could have changed now? Are there 150 new entities with huge bank balances that have suddenly emerged in the last six months in this environment were companies are struggling to sustain operations due to depressed aggregate demand?

Unless the Central Bank and other relevant stakeholders deal with this uneven concentration of liquidity, the market shall remain at the mercy of the Big 200..

Again, what Mangudya submitted as measures to address this anomaly, thus via the distribution of liquidity through the issuance of TBs, Savings Bonds, Corporate Bonds etc cannot be entirely trusted to normalize the financial sector.

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On inflation, the Bank set a target of below 5 percent for month on month inflation by end of March from 16.55 percent in December 2019 and also projected year on year inflation to drop to 50 percent by December 2020 from over 500 percent recorded last year, a projection analysts view it as rather ambitious in light of current factors.

“The Reserve Bank still expects decency in respect of inflation and exchange rate so you find an inflation target of 50 percent by year-end has been projected and month on month at 5 percent, but it seems unrealistic taking into account a lot of factors at play at the moment. What is clear is that the Reserve Bank has limited power of these because when we talk of money supply, the major influencer is Treasury and we have also heard of the unusual concentration of money supply in 200 entities so it limits the Bank,” financial analyst, Persistent Gwanyanya weighed in.


On the enhancement of production through lending to productive sectors, the RBZ set aside ZWL$ 1.5 billion to offer banks to lend during the 2020 winter farming season.

This is a step in the right direction given the financing challenges local farmers are grappling with.

Zimbabwe’s import dependency ratio is almost around 50 percent and enhancing food production will go a long way in mitigating the need to import basic food stuffs such as wheat and corn.

This ZWL$ 1.5 billion is an addition to the ZWL$ 800 million already channeled towards the agriculture sector through the RBZ Medium Term Bank Accommodation Window.

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The MPS has also set new minimum bank capitalization levels revised in order to cushion banks against loses and build confidence in the local financial sector.

Minimum capital levels for tier 1 banks (commercial banks)  will be in local currency equivalent of US$ 30 million, tier 2 (merchant banks, building societies etc)US$ 20 million, tier 3 (deposit taking micro finance institutions) US$ 5 million and the Microfinance institutions will have a minimum capital requirement of US$ 25 000 equivalent.

The minimum capital requirements are expected to advise the Central bank on which tier they want to operate in by June 2020.

On Free funds the governor emphasized that the bank has no appetite to temper with these funds as they are critical in foreign currency generation for the economy.

And of course, the de-dollarization framework. The Bank anticipates that the country needs five years to fully de-dollarize and do away with the US dollar hangover.

Yet the assumption was the MPS would address the re-dollarization taking place by tightening screws on compliance in transacting with the local currency.

But between now and then, we can not afford to continue in such a desperate situation of price distortions arising from usage of two currencies operating in one sphere, with one legal and the other illegal- This is were the monetary policy failed us.








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