Govt satisfied with liquidity management programme
Finance, Economic Development and Investment Promotion Minister Prof Mthuli Ncube has expressed satisfaction with the ongoing liquidity management programme aimed at maintaining macroeconomic stability, despite concerns raised by various economic players about a liquidity crunch.
The liquidity management programme is a key component of broader economic policy framework and it aims to ensure there is sufficient liquidity in the market to support economic activity and prevent disruptions.
It involves a range of measures, including open market operations, reserve requirements and interest rate adjustments.
In an interview on Tuesday, Minister Ncube said the primary objective of the liquidity management programme was to safeguard the domestic currency by curbing excessive liquidity growth — a significant driver of currency volatility, instability and ultimately, causing inflationary pressures that undermine macroeconomic stability.
“The issue in terms of liquidity has been really the protection of the domestic currency, where we wanted to curtail the growth of liquidity, because any excessive growth of liquidity will impact the volatility of the currency and hence macroeconomic instability in general,” Minister Ncube said.
“At the moment, we feel that things are being managed in the right way,” he added.
Several economic players have raised concerns about liquidity crunch, citing factors such as limited credit availability and a decline in economic activity.
Morgan & Co, in its Zimbabwe 2025 outlook report released yesterday said the current restrictive monetary policy, characterised by tight liquidity for both Zimbabwe Gold (ZiG) and US dollars as well as high interest rates on the local currency, had positively impacted on the currency stability.
The policy stance, it said, had “somewhat” stabilised the parallel market exchange rate and narrowed the gap between the black market and the official exchange rate.
“However, this has limited the amount of loans issued by the banking sector and will subsequently affect the availability of bridging finance aimed at covering cash flow gaps between production and receipt of sale proceeds in the private sector,” said Morgan & Co. “This is (also) expected to actually affect seasonal businesses (and) will also ripple into aggregate demand in 2025.”
Minister Ncube, however, noted the Reserve Bank of Zimbabwe’s launch of the Targeted Finance Facility (TFF), which channels liquidity to specific productive sectors through commercial banks was a positive development as the initiative was expected to inject additional liquidity into the economy.
The TFF specifically targets the manufacturing, mining and agriculture sectors.
The central bank lends funds to commercial banks at a preferential interest rate. The banks then on-lend the funds to businesses within the targeted sectors at a slightly higher, but still competitive, rate.
It is meant to address liquidity constraints faced by businesses in these sectors, enabling them to access affordable working capital, thereby stimulating economic growth and create employment opportunities.
Dr Mushayavanhu
“You have seen the launch by the central bank of a Targeted Facility Programme, where the central bank is releasing liquidity into the market via the banks for targeted productive sectors in manufacturing, in some bit of mining, and then also in the agricultural sector,” said Minister Ncube.
“So we think that this is also a very good thing that will also assist in unlocking additional liquidity into the economy.”
Morgan & Co weighed in, noting that the introduction of the facility is expected to mitigate the impact of tight monetary policy on the private sector.
“The facility will avail ZiG liquidity strictly to productive sectors to the economy through the disbursements of the short term colletarised loans to cover emerging working capital gaps.”
RBZ governor Dr John Mushayavanhu said last week that the issue was not about lack of liquidity in the market.
He explained that the market had been experiencing excess liquidity, with daily surpluses exceeding ZiG1 billion since September. To manage this excess, the central bank had been conducting daily sterilisation operations through the issuance of Non-Negotiable Certificates of Deposit (NCDs) at a zero percent interest rate.
Dr Mushayavanhu said the primary challenge lies in the limited interbank trading activity among banks, noting that liquidity was concentrated within a few institutions.
“In a normal money market, banks that are long should lend overnight or even over 30, 60, 90 or 180 days to banks that are short at the bank policy rate or higher against security,” said Dr Mushayavanhu.
“For reasons best known to the banks this is not happening. Under the TFF we are taking the money we have sterilised via NNCDs and lending it to those banks that are square but have bona fide customers who want to borrow. That way we can support the productive sector without increasing money supply. Surprisingly, instead of lending to the bank next door and getting interest income, some banks are content with RBZ taking their excess funds and parking them in NNCDs at zero interest. So we are just redistributing the excess ZiG via the TFF.”-herald
