‘Interest rate adjustments need due diligence’ Zimnat
Zimnat believes the new policy rates will need meticulous adjustments as there is need for a ZiG currency inflation for proper adjustments before losses are made on investments and loans.
The asset management firm believes the new rates will create an interest rate corridor ranging from 11 percent to 25 percent per annum.
RBZ has adjusted its bank policy rate from 130 percent per annum to 20 percent per annum under the new monetary policy framework.
As a result, the overnight accommodation interest rate has been set at 5 percent above the Bank policy rate, while the Bank deposit facility interest rate has been set at 7.5 percent below the Bank policy rate.
The apex bank has set the minimum savings and time deposits interest rates on ZiG at 9 percent and 7.5 percent below the Bank deposit facility rate of 12.5 percent, respectively.
The minimum interest rates on FCA deposits remain unchanged at 1 percent and 2.5 percent for savings and time deposits, respectively.
According to Zimnat, “The determination of interest rates in the absence of inflation and other critical data poses significant risks for ZiG lenders and fixed income investors. Therefore, a ZiG Consumer Price Index will need to be introduced as a benchmark for interest rate pricing.”
However, the bank believes that interest rates will not be adjusted due to inflation as they feel they will have enough reserves to defend the ZiG currency when the need arises.
According to the RBZ, 50 percent of the foreign currency proceeds from surrender requirements will be used for strategic interventions in the foreign exchange interbank market.
The remaining balance will be used to fund the government’s foreign currency obligations in exchange for ZiG and to build foreign exchange reserves for the Reserve Bank.
The RBZ has standardised the foreign currency retention thresholds at 75 percent across all sectors, except for small-scale gold producers.
According to the asset management firm believes that if surrender requirements are not managed properly, the government may resort to printing money to purchase foreign currency.
“In our opinion, the RBZ should either completely remove surrender requirements to eliminate this market distortion or make the surrender requirements more of a right of first refusal. This means that if the government or the RBZ does not have local funds to purchase foreign currency from exporters, the available currency should be sold on the open market,” they said.
Exporter surrender requirements are inconsistently adjusted each year, making it challenging for exporters to plan while the local currency funding of these surrender requirements has proven to be inflationary over the years, as the RBZ has had to print money to buy foreign currency from exporters.
This remains a serious concern for ZiG, given its limited availability at around 12 percent of the money supply.
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