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RBZ moves to control interest rates

THE Reserve Bank of Zimbabwe (RBZ) on Tuesday announced a new interest rate structure aimed at taming the country’s high interest rates which are hampering savings.
It is estimate that around $2 billion is circulating outside the banking sector at a time when the country is facing a crippling liquidity crisis.
“The current interest rate structure in Zimbabwe is distorted as evidenced by the wide disparity between deposit and lending rates. These distortions have been sending mixed signals to the market, as reflected by inconsistencies in the pricing of loans and savings deposits,” the bank said in a statement.
It proposed indicative yields of 6.6 percent for 91 day instruments, 7.2 percent for 180 day instruments and eight percent for 365 days instruments which would be used to benchmark the country’s financial markets.
“This yield curve acts as a guide to the structure of interest rates, especially the Treasury Bill rates,” said the central bank.
The bank said the yield curve would be adjusted regularly in line with macroeconomic developments notably, foreign interest rates, domestic inflation and country risk profile.
Currently, most banks are quoting average lending rates of around 20 percent.
However, earnings on deposits range from 0.15 percent for savings accounts, to 20 percent for time deposits.
“The wide disparity between rates in the market underscores the need for a properly discernible yield curve to guide the market,” said the bank.
Under normal circumstances interest rates in an economy should be anchored on a reference policy rate, notably the central bank’s overnight accommodation rate or the bank rate.
However, the multicurrency system adopted by government in 2009 to curb runaway inflation robbed the central bank of its role as the lender of last resort  hence the lack of requisite and potent instruments to influence the levels of interest rates in the market.
The recent move by government to inherit RBZ debt of $1.35 billion and recapitalise it to the tune of $200 million will enable it to resume this role.
This would lower market liquidity risks, by unlocking funds in the inter-bank market.
The prevailing high interest charges have resulted in banks largely attracting short-term and highly volatile deposits according to RBZ.Advertisement

RBZ is expected to present its monetary policy statement on Wednesday.