By Alois Vinga
THE Reserve Bank of Zimbabwe (RBZ) has promised to review interest rates early next year, but hinted that such an exercise will be influenced by inflation decline fundamentals.
In the first half of this year, the central bank hiked interest rates to between 100% and 200% as part of the cocktail measures aimed at reining in speculative borrowing of funds which were later used to fund the parallel market exchange rate activities.
Some sections of society have continued to urge the authorities to urgently revise the interest rates downward, arguing they have become a barrier to productive capital for innocent borrowers.
But in an update soon after the Monetary Policy Committee (MPC) meeting this week, the RBZ Governor, John Mangudya hinted at the possibility of a review early next year.
“The committee unanimously agreed to stay the course of a tight monetary policy and resolved to maintain the Bank policy rate and medium-term lending rate at current levels of 200% and 100%, respectively, and to review the interest rates in the first quarter of 2023 as dictated by inflation developments,” he said.
Despite the pressure for a downward review, the RBZ believes that the tight monetary policy conditions are a necessary evil.
The MPC also agreed to further liberalise the foreign exchange market in the first quarter of 2023 and to enhance efficiency in the operation of the foreign exchange auction system and the willing-buyer willing-seller foreign exchange mechanism.
A commitment to continue supporting the productive sectors of the economy through the Medium Term Lending Facility (which the Bank will increase in 2023 from the current limit of ZW$10 billion to ZW$20 billion) under which micro, small and medium enterprises, individuals and the productive sectors of the economy can borrow at interest rates applicable from time to time was made.
The MPC also agreed to review the foreign currency retention thresholds on exports and domestic FCAs during the first quarter of 2023 in line with improved efficiency of the foreign exchange trading systems in order to sustain the current growth trajectory in foreign currency receipts.
The MPC expressed satisfaction with the positive impact of the recent policy measures on macroeconomic stability and economic performance and noted the need to sustain the gains realised so far.
This was prompted by noting the progressive decline in monthly inflation, from a peak of 30,7% in June 2022 to 1,8% in November 2022, which has seen annual inflation falling from 285% in August 2022 to 255% in November 2022.
“Expectations are that the economy will grow by 4% in 2023 and that inflation will remain stable at below 3% per month throughout the year,” added Mangudya.