RBZ stays on course, but pressure mounts: IH

Brokerage firm, IH Securities, says monetary policy remains on course but there is downward pressure from the impending elections pressure.

IH Securities noted that the central bank has re-iterated its stance of maintaining a hawkish approach to maintain monetary stability whilst striving to keep the currency basket at a mix of 60 percent USD and 40 percent local currency.

This comes after the central bank doubled down on its contractionary measures to offset pressures with the main policy rate being raised to 200 percent.

Such a tight monetary policy stance allowed the bank to anchor inflation and exchange rate expectations as the economy responded ending the year in a disinflation trajectory.

“The revised interest rates still remain a deterrent towards speculative borrowing at these levels. However, on the fiscal aspects, budgetary stringency by the government is likely going to be challenging to exercise in an election,” the brokerage firm said.

They believe that against this backdrop, there remains downside to inflation forecasts.

“After slowing down 75 percent in real terms in 2022, the ZSE seems to be entering positive territory again on abundant buying opportunities,” IH Securities noted.

However, they noted that while fundamentals speak to a bullish stock market in 2023, in 2022 the country observed a dislocation between fundamentals and the ZSE stock market performance and the uncertainty around money supply developments in 2023 propels the country to lean more towards defensive stocks that have strong dividend policies in case capital gains remain subdued.

Forward looking, the bank expects the downward trend in inflation to continue into 2023 with target for month-on-month blended inflation being set to below 1,5 percent whilst annual inflation is expected to progressively decline to close the year in the range of 10-30 percent.

IH Securities noted that key risks to estimates are possible spill-over effects from global events and perceived confidence levels as the country heads towards general elections.-ebusinessweekly