Hands off monetary policy, Treasury told

TREASURY should desist from announcing monetary policy measures as this undermines the role of the Reserve Bank of Zimbabwe (RBZ) in restoring the much-needed confidence in the financial market, economic commentators have said.

This comes on the back of contradicting pronouncements between Finance and Economic Development Minister Professor Mthuli Ncube when he recently announced a series of new measures to stabilise the economy amid hyper inflation fears and the RBZ’s Monetary Policy Committee (MPC) statement on macro-economic and financial development in the economy released this week.

Among other measures, Ncube said all export proceeds that remain unutilised after 90 days will be liquidated onto the interbank market while on the contrary the MPC said “in order to ensure that the interbank forex market is self-financing, the 90-day liquidation requirement on export proceeds will fall away”.

The Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer Christopher Mugaga said it is the role of the central bank to determine issues pertaining to exchange management including retention.

“The Treasury should avoid announcing monetary measures because the central bank has never announced fiscal measures.

“We are imploring the Treasury that any statement they think is necessary to the market, they can actually co-issue it or co-sign it than to have a statement on monetary issues coming from the Treasury.

“The signal that is created is that when the market starts losing confidence with the central bank, the sentiment will be like the Treasury does not have confidence with the central bank and once that happens even the currency issued by the central bank loses value because the market does not have confidence. What makes people accept the currency is believing that the currency has value,” he said.

This week, the Zimbabwe dollar fell 30 percent at this week’s RBZ auction to $3,674 per United States dollar.

“What needs to be solved possibly is the conflation of these two institutions (Treasury and RBZ) because it will create a challenge in the future, conflation in the sense that the central bank should never ever enter the arena of fiscal activities, either quasi-fiscal activities or fiscal,” said Mugaga.

In a separate interview, another economic commentator Wendy Mpofu echoed similar sentiments saying Treasury should not be seen assuming the responsibilities of the central bank as this would, going forward, results in policy discord.

“By announcing monetary policy measures, the Treasury is creating confusion in the market as announcements of such is the prerogative of the RBZ. Once that happens it also works against the restoration of confidence in the financial market,” she said.

An economic commentator, Trust Chikohora said there should also be clarity on the 90-day window for retention of export proceeds.

“The RBZ is also saying that the 90-day window for retention of export proceeds will fall away, it’s not clear what this means. Does it mean that companies can now hold on to foreign currency forever should they want or does it mean that foreign currency should be immediately liquidated, it’s not clear, we need clarity there.”

In terms of the latest MPC statement, Chikohora said the policy statement is in the right direction.

“The huge jump which took the rate to $3 674 shows that there is a direction to take the auction to market realities. The second issue coming from the statement itself is that interest rates have been hiked from 140 percent to 150 percent in line with inflation upward movement which is the policy that we have been pushing for that interest rates should always be above inflation.

“Whether the 150 percent is adequate for the Zimbabwe dollar inflation at the moment is another issue, but the fact that they have raised the interest rate, shows the policy direction of going towards real interest rates that take into account the levels of inflation in the economy,” he said.

Chikohora said the other issue of note from the MPC statement is that the RBZ was now selling foreign currency on the interbank market, which is a positive development as this will be done at the willing buyer-willing seller rate.

“However, it’s not clear where the source of foreign currency will be coming from because the Government in the earlier statement from the Ministry of Finance was saying that they will be taking funds from surrender requirements of exporters and use it to finance the auction.-ebusinessweekly