No to interest rates hike, Mthuli

Government did not respond to speculative borrowing from banks by hiking interest rates to avoid penalising innocent borrowers and triggering non-performing loans ;(NPLs), according Finance and Economic Development Minister, Professor Mthuli Ncube.

Speculative borrowing from banks has been blamed for exchange rate volatility and recent inflation resurgence.

Recently Mthuli said in a ZTN programme, The Mint Special, that raising interest rates to spike borrowing for speculative purposes in the currency and equities market would have serious unintended ramifications.

Mthuli said hiking rates would punish bonafide borrowers and make loans prohibitively expensive.
“If you raise interest rates sharply, to deal with speculation, sometimes you tend to punish the honest; those who are in the real sector who are productive and borrowed genuine loans, and it will (also) increase the non-performing loans problem.

“So, we do not want to punish the honest and increase the NPLs, we would rather deal with the speculation by constraining the liquidity that you are giving to them to speculate, and that is what we did,” said.

Mthuli said the fundamentals that determine currency movement were strong, including huge forex reserves at the central bank amounting to US$1 billion, strong current account and fiscal positions as well as a balanced national budget.

Further, he said Zimbabwe had a very strong monetary policy stance. “The fundamentals for a strong currency are in place and yet we see this situation, which has to do, as I said, with indiscipline…”-eBusiness Weekly