RBZ directed to reduce lending rates to 35 %

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By Alois Vinga

THE Reserve Bank of Zimbabwe (RBZ) has been directed by the Monetary Policy Committee (MPC) to reduce lending rates to 35% in a move which will encourage borrowing and stimulate productivity.

The resolution, communicated in a recent Central Bank statement, was reached at the MPC meeting held last Friday and comes into effect this week.

“To this end, the Bank policy rate currently at 70 % requires review. Notwithstanding a recent spike in monthly inflation to 38.8% due to shocks mainly caused by adjustments of electricity and fuel prices, the inflation outlook positive.

“Consequently, the committee resolved to resolve the bank policy rate from 70% to 35 % with effect from 20th November 2019,” read the statement.

RBZ last raised its overnight borrowing rate from 50% to 70% in a September monetary policy statement arguing the increase in interest rates would stabilise inflation – last published at 175% in June – and ease pressure on the exchange rate.

This means that financial institutions were borrowing from the Central Bank at the repo-rate of 70% interest. They were on-lending to their clients at 70 % plus rate in order to make a profit.

Several market watchers felt the 70% interest rate was rather too high and risked frustrating borrowing for productive purposes by companies.

The committee also resolved to set up a working group comprising RBZ officials, treasurers from authorised dealers and members of the MPC to review rules of the interbank market with a view to improving its efficiency.

The 2020 budget was welcomed with emphasis on the need for the bank to put in place measures to fund the productive sectors of the economy by redirecting excess liquidity in the financial system.

The board resolved that all exporters who do not repatriate export proceeds within the statutory exchange control approved limits shall forfeit their retention of export proceeds through the liquidation of such funds upon receipt at the interbank and prevailing exchange rates.