By Alois Vinga
RESERVE Bank of Zimbabwe (RBZ) first Monetary Policy Statement (MPS) for the year 2023 reduced interest rates to 150% per annum while maintaining a tight grip on inflation containment measures amid surging foreign currency receipts which hit US$11,6 billion in 2022.
Delivered by RBZ governor John Mangudya Thursday under the theme, “Sustaining Price Stability and Economic Resilience” , the MPS effectively answered the outcry by industry over high interest rates by approving a climb down from the current 200% to 150% in line with inflation projections.
The MPS is anchored on the continued use of interest rates to regulate the cost of money and aggregate demand conditions to achieve the inflation objective, the use of gold coins and the auction system as part of open market operations to stabilise the exchange rate in order to minimise its pass through to domestic prices.
It is also premised on regular interventions in the foreign exchange market through forex sales to banks through auction on a wholesale basis from the surrender portion of foreign exchange receipts to smoothen exchange rate shocks.
The lending rate on the Medium-term Bank Accommodation (MBA) Facility for the productive sectors was reduced from 100% per annum to 75% per annum in a bid to promote productivity.
He revealed that foreign currency receipts had reached an all- time high in the just ended year, testifying the positive impact of reforms.
“Total foreign currency receipts for the period January to 31 December 2022 amounted to US$11.6 billion million compared to US$9.9 billion received during the same period in 2021, representing a 17.3% increase.
“This speaks to the strong and encouraging growth in the level of receipts during the year, which under normal circumstances should be supportive of stability of the exchange rate,” said Mangudya.
The document projected end-period blended annual inflation for 2023 of 10-30%.
Export retentions were increased and standardised at 75% across all sectors, including firms listed on the Victoria Falls Stock Exchange (VFEX) with foreign currency retention on domestic sales in foreign currency increased to 85%.
The Willing-Buyer Willing-Seller (WBWS) and the auction system will continue to complement each other.
The auction system continues to act as a foreign currency re-distribution mechanism to gauge foreign currency demand in the economy.
The limit for the WBWS will remain at US$100,000 per entity in line with the Foreign Exchange Auction System limits for secondary users.
“Monetary policy remains restrictive to sustain the current stability with interest rates aligned to inflation developments in order to sustain and strengthen economic resilience. Inflation has moderated but remains under close watch by the Monetary Policy Committee (MPC) of the Bank,” added Mangudya.