The Reserve Bank of Zimbabwe (RBZ)’s Monetary Policy Committee (MPC) has resolved to maintain the Bank Policy Rate at 80 percent and the Medium-Term Bank Accommodation Facility Interest Rate at 50 percent amid growing concerns over increasing money in circulation which has pushed inflation above earlier projections.
This comes amid calls by business for authorities to cut the exorbitant rates as they have upped the cost of borrowing for production. The Bank has however said the current levels are meant to deter unscrupulous currency traders from speculative borrowing which has eroded the value of the local currency.
Month-on-month inflation rose from 7.7 percent in March to 15.5 percent in April and annual inflation also shot from 72.7 percent in March to 96.4 percent in April. This is against government’s annual inflation target of 30 percent by end of this year.
The past few weeks have seen a rapid movement of the exchange rates largely linked to an increase in money supply which has been pushing prices up, despite that monetary authorities are convinced that economic fundamentals remain strong.
“The increase in inflation was as a result of a combination of global shocks and the pass-through effects of the recent exchange rate depreciation on the parallel market, with a significant proportion of the inflationary pressures emanating from the impact of the on-going Russia-Ukraine conflict,” the MPC said in a statement issued this afternoon.
It also resolved to, “Maintaining the Bank Policy Rate at 80% and the Medium-Term Bank Accommodation Facility Interest Rate at 50%; maintaining the minimum deposit rates for ZW$ savings and time deposits at 12.5% and 25% per annum, respectively; maintaining the quarterly reserve money growth target at 5% for the quarter ending June 2022; and maintaining the foreign payment transactions limit on the willing-buyer willing-seller foreign currency trading arrangement for banks and bureaux de change at US$1 000 and allowing the Bank to increase the limit as conditions permit.”
The MPC also said the recent exchange rate shocks are a manifestation of negative sentiments attributable to people past experiences with hyperinflation and inevitable losses incurred during currency reforms.
The country has done commendably well on balancing the current account realizing US$2.4 billion in foreign currency receipts during the first quarter of 2022, an increase of 15.9 percent compared to foreign currency received during the same period in 2021.
The foreign currency receipts were against foreign payments of US$1.8 billion, leaving a surplus of US$1.9 billion.
On money supply, reserve money has been stable at levels of around ZW$28 billion for the past six months, while annual growth in broad money fell from 384 percent in March 2021 to 151 percent in March 2022.