Govt Tackles Excess Liquidity To Arrest Exchange Rate Upswing
Monetary authorities today announced a raft of remedial measures meant to mop excess liquidity in the economy and stabilize the parallel market exchange rate which went haywire over the past two days.
Since Monday morning, the Zimbabwean dollar has plunged nearly 20 percent as of Wednesday afternoon from ZWL$ 33 against the American dollar to ZWL$ 40.
Addressing press at the Reserve Bank of Zimbabwe, Finance and Economic Development Minister Professor Mthuli Ncube said the Bank will review all regulations covering operations of mobile money platforms which harbor the bulk of unscrupulous money trading activities to contain excess liquidity.
“Government is cognizant of the fact that unrestrained increases in money supply are one of the fundamental causes of inflation and the depreciation of the exchange rate,” he said.
To address this, the Bank will place limits on daily bulk payer transactions following consultations with mobile money service providers early this week.
The transaction limits will be issued by relevant players later this week.
Furthermore, a short term Corporate bond of about 30 to 70 days with attractive features will be created to absorb excess liquidity from the market.
The gold incentive facility will be terminated shortly after a more robust and efficient Reuters electronic trading system for foreign currency has been put in place. The incentive has been creating extra liquidity as miners were getting 10-25 percent of total value of gold surrendered to Fidelity.
On the other end, the Ministry of Finance will also ensure smooth expenditure disbursements to contractors so that large ZWL payments are not bunched as this is likely to disrupt the foreign exchange market.
Monetary authorities have been battling with over concentration of liquidity in the economy with figures showing that just 200 entities are holding 50 percent of all bank deposits creating fertile ground for exchange rate manipulations.
The Bureax de Change has also been liberalized by allowing it to trade on the Reuters electronic system which will see the Central Bank also allocating foreign currency.
“The Bureaux de Change, will also participate on this platform through their Authorized Dealers. The trading rules of the Bureaux de Change are being liberalized so that they can conduct all wider range of transactions,” the Finance Minister said.
However analysts are not entirely satisfied with measures being put in place pointing that they authorities are always a many steps behind the obtaining exchange rate movers.
“We applaud the fact that authorities have come out to issue measures to deal with recent movements on the exchange rate. However these measures are rather late. We also notice that all these interventions are well thought and can easily maintain stability in an economy where there is already stability. We have an economy largely made up of informal activities and some of the interventions such as corporate bill will not really attract the huge unbanked money out there. We still have to seriously think around that area,” Economic expert, Persistence Gwanyanya told 263Chat Business.
Zimbabwe is currently navigating a rough de-dollarization phase since abandoning the US Dollar denominated multi-currency system last year.
The Central Bank has set its target for a stable local currency to five years from now.