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Central Bank Maintains 60 % Policy Rate To Tame Inflation

The Reserve Bank of Zimbabwe (RBZ) has maintained the bank policy rate and the Medium Term Accommodation (MBA) Facility interest rate of 60 percent and 40 percent, respectively as authorities seek to keep money supply tightened and curb speculative borrowing on the market.

This comes amid calls by some sections of business for a downward review of the rates which were relatively higher compared to regional peers.

Last week, the National Competitiveness Commission said the 60 percent interest rates were making local industry value chains less competitive as companies were not in a position to borrow towards enhancement of production.

In his monetary policy statement, Mangudya said the bank will “stay the course” on keeping money supply tight if it is to achieve its inflation targets for the year.

Average annual inflation is expected to fall to 32.6 percent in 2022 from 94 percent last year and further drop to 17.5 percent in 2023 on strict control of money supply, monetary authorities’ project.

Rates remain high to discourage currency speculators from borrowing to finance the parallel money market which has been the biggest factor to the depreciation of the local currency and high inflation.

“The Bank, through the Monetary Policy Committee (MPC), will continue monitoring monetary and financial conditions and their implications on interest rate policy for possible future adjustments,” said Mangudya.

The bank has also put in place measures to encourage usage of the local currency to ease demand for the USD.

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These include increasing foreign exchange availability to fuel service stations designated by the Zimbabwe Energy Regulatory Authority (ZERA) to sell fuel in local currency, maintaining minimum deposit rates for savings and time deposits at 10% and 20%, respectively, to preserve value for local currency deposits and increasing the limit on mobile banking transactions.

According to the Bank, person to business transaction limit has been upped from ZW$20 000 to ZW$25 000 per transaction with a maximum limit of ZW$100 000 per week, Person to person from ZW$5 000 to ZW$10 000 per transaction with a limit of ZW$70 000 per week.

It has also increased the cash withdrawal limit for the banking public from ZW$2000 to ZW$5000 per week.

Meanwhile, the Governor said banking sector profitability was up 69.63 percent to ZWL$ 59.29 billion from ZWL$34.95 billion reported for the corresponding period in 2020 driven by improved interest income from loans and advances.

The latest figures reflect stability in the local banking sector which also showed that most of the financial institutions had managed to comply with statutory capital requirements.

“During the year under review, interest income from loans and advances contributed 34.99 percent, compared to 17.82 percent in December 2020, of the total income, an indication of a shift towards the traditional sources of revenue such as income from financial intermediation activities, which is considered stable and sustainable,” said Mangudya.

Non-interest income was driven by fees and commissions due to increased transactional volumes on digital platforms in the wake of Covid-19, as well as initiatives by banking institutions to promote the use of plastic money.

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Translation gains on foreign currency denominated assets, as well as, revaluation gains from investment properties also contributed to the growth in other non-interest income.

Total deposits amounted to ZW$476.35 billion as at 31 December 2021, which represented a 29.79% increase from ZW$367.02 billion reported as at 30 September 2021.

Total banking sector loans and advances increased by 61 percent from ZW$142.79 billion as at 30 June 2021 to ZW$229.94 billion as at 31 December 2021, largely attributed to the translation of foreign currency denominated loans.

The year ended with foreign currency denominated loans constituting 36.87 percent of total banking sector loans, up 30.16 percent reported in June 2021.

As at 31 December 2021, out of the 18 operating banking institutions (excluding POSB with no statutory minimum capital requirement), 13 banking institutions complied with the new minimum capital requirements, for their chosen capital tier segment.

The required minimum capital was ZW$ equivalent to US$30 million for Tier 1 banking institutions and US$20 million for building societies.

“Banking institutions bolstered their capital positions through organic growth including recapitalization of revaluations gains on investment properties as well as capital injection by shareholders,” said the RBZ.



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