Which way interest rates as MPC meets
The Reserve Bank of Zimbabwe (RBZ)’s Monetary Policy Committee (MPC) member, Persistence Gwanyanya, has hinted at mellowing of interest rates ahead of the Committee’s meeting today.
Through his Twitter handle on Wednesday morning, Gwanyanya said the MPC is expected to deliver on its primary mandate of setting interest rate policy when it meets today.
The economy is operating on a two tier interest rate policy with the Bank rate at 200 percent per annum and the Medium Term Bank Accommodation (MBA) at 100 percent.
The interest rates were increased from their previous levels as a way of curtailing consumptive borrowing and promote borrowing for productive reasons, Gwanyanya said.
He credited the prevailing interest rates regime for bursting the bubble in the financial markets.
Given the stability there is now need “to think beyond current stability to durable stability,” according to Gwanyanya.
With inflation slowing down, Gwanyanya hints it could be time to lower interest rates.
“Normally, interest rate decisions are based on projected annual average inflation for the next 12 months,” Gwanyanya tweeted.
Official inflation slowed to 1,8 percent in November 2022 shedding 1,4 percentage points on the October 2022 rate of 3,2 percent, according to latest figures released by ZimStat this week.
The Government set a month-on-month inflation target range of between 1 percent to 3 percent, and a fiscal budget deficit of not more than 1.5 percent of GDP during 2023.
“If Treasury’s m-o-m inflation target of 1-3 percent is achieved, annual average inflation for 2023, will be significantly lower, probably two digit level,” said Gwanyanya.
Going by this argument, and if all MPC members see average inflation slowing to double digits in the next 12 months, then interest rates could be cut today.
Gwanyanya, however, said while decision on interest rate is key, timing is equally important.
He said the downside risk on inflation trend is still high ahead of the “2023 general election and geopolitical factors”.
Lowering interest rates would be welcomed by the Zimbabwe National Chamber of Commerce which, in its submissions to the 2023 National Budget, said “high interest rates are making the funding of business operations and new investments unviable”.
“We understand the need to curtail speculative borrowing and bring the much needed stability in the economy by raising interest rates.
“However, the projected growth of 4.6 percent may fail to be attained due to a decline in investment and aggregate demand due to the high cost of borrowing,” reads part of ZNCC’s submissions to the 2023 National Budget.
In a recent trading update, GB Holdings company secretary, Patrick Munyanyi said; “high-interest rates constrained operations due to high debtor default and inability to access additional local funding”.
Edgars CEO Tjeludo Ndlovu, shared the same sentiments at the company’s analysts’ briefing last month when she said “high interest rates dampened consumption and investment levels resulting in our customers cutting on ZWL purchases negatively affecting our sales growth.”
Equity market analyst Rufaro Hozheri, said he would welcome the Bank policy rate being reviewed downwards as it is “suffocating the economy.”
“Sales volumes are down and just talking to economic agents you get the sense that the economy is slowing.
“Money supply should be managed and there are many ways of doing it than to make borrowing next to impossible not to talk about the burden on already levered economic agents,” he said.
An analysis by the Confederation of Zimbabwe Industries revealed that the policy to hike interest rates to a minimum of 200 percent “virtually eliminated borrowing in local currency as a way of finance and reduced industry expansion prospects”.
“An interest rate of 200 percent compounded monthly effectively eliminated ZWL$ borrowing, as businesses could not afford such high borrowing costs,” reads part of a recent CZI report.
Such an impact calls for a review of the prevailing interest rate regime.-ebusinessweekly
