‘Tight monetary policy aiding price stability’

RESERVE Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya, says maintaining a tight monetary policy has aided sustenance of prevailing price stability and domestic business resilience amid positive financial performance by the banking sector.

Government which has allowed use of dual currency system, has tightened screws on money supply through higher interests, now pegged at 150 percent from 200 percent, restricted cash circulation while keeping withdrawal limits under check.
These, coupled with the mopping up of excess liquidity through gold coins, issuance of Treasury Bills, and operationalisation of the formal foreign exchange systems, have helped the Government to significantly reduce inflation pressures and stabilise prices.

Reserve Bank of Zimbabwe (RBZ)

Monthly inflation has dropped from a peak of 30,7 percent in June last year to 1,1 percent last month while annual inflation has similarly declined from a peak of 285,1 percent last August to 243,8 percent by end of last year.
In remarks during the Confederation of Zimbabwe Industries (CZI) annual economic and business outlook symposium on Wednesday, Dr Mangudya said the domestic economy and inflation outlook is positive.

He attributed this to the fiscal and monetary policy measures being pursued by Government.
Dr Mangudya said the RBZ will continue to pursue a tight policy to consolidate and sustain the prevailing stability in the exchange rate and reduce the pass-through impact on domestic prices.

CONFEDERATION of Zimbabwe Industries (CZI)

“The bank will stay the course of a restrictive monetary policy stance to consolidate and sustain the price and exchange rate stability,” he said.

Dr Mangudya said the bank’s monetary policy will anchor a combination of interest rate policy to regulate the cost of money and aggregate demand conditions as well as exchange rate targeting to stabilise prices.
He said the bank policy rates will continue to be reviewed in line with expected average inflation.
While some economic players have complained over tight monetary policy, Dr Mangudya said the high-interest rates were increased in July last year in response to negative inflation expectations emanating from rampant speculation and market indiscipline.

Going forward, he said inflation was expected to decline in the short and medium term and that necessitates a downward review of policy rates.
With the annual inflation rate seen dropping to between 30 and s60 percent from about 230 percent, the Governor said policy rates are expected to also fall in line with the reduced inflation.
“The interest rates on local currency deposits and loans will be guided by the implied expected average annual inflation on the domestic currency,” he said.

On the increased in the economy, Dr Mangudya clarified that this was a result of significant foreign currency inflows as opposed to reduced use of local currency in the economy.
He said the use of dual currencies has sustained the prevailing economic resilience and created a conducive environment for a sustained growth trajectory.
The Governor also stressed the need for the country to recalibrate inflation reports to reflect the dual currency nature of incomes and prices in the economy.

US dollar

According to ZimStat, about 77 percent of the transactions in the economy are now done in US dollars, with the remainder being local currency, an outcome that has been buttressed by CZI surveys and confirmed by rising foreign currency account deposits.
Dr Mangudya said the economy has exhibited strong resilience despite unforeseen macroeconomic shocks amid elevated consumer demand supported by increased foreign currency receipts, diaspora remittances and robust domestic production.
He said the appetite for value preservation savings instruments such as gold coins was encouraging and commendable. Official figures show that a total of 25 188 Mosi-oa-Tunya gold coins valued at $20 billion have been sold since their introduction last July with 84 percent bought by corporates while purchases by individuals accounted for 16 percent.-chronicle