The bulk of the country’s foreign currency earnings come from export proceeds, development partner support and Diaspora remittances. According to a recent update by the Reserve Bank of Zimbabwe (RBZ)’s Monetary Policy Committee (MPC), the country’s economy is on a positive trajectory with strong growth outlook.
The recent injection of US$961 million through the International Monetary Fund (IMF) Special Drawing Rights allocation is expected to add greater impetus.
“In particular, the committee welcomed the impressive performance of foreign currency receipts, which increased by 32 percent to US$5,09 billion as at 7 August 2021 compared to US$3,85 billion received during the same period in 2020,” said the Reserve Bank.
Cumulative foreign exchange payments increased by 42 percent to US$3,59 billion as at the 7th of August 2021 compared to US$2,52 billion for the same period last year. The significant increase in foreign currency receipts is critical for sustaining the foreign exchange market and fostering exchange rate stability.
“Against this background, the MPC emphasised the need for staying the course of the current monetary policy stance, which has proven to be effective in combating inflation and fostering monetary stability in the economy,” it said.
“Commendably, the prudent monetary policy stance has seen year-on-year inflation dropping from 837,5 percent in July 2020 to 50,2 percent in August 2021.”
To sustain the downward spiralling of inflation and exchange rate stability while supporting the foreign exchange auction trading system, the Apex Bank has resolved to maintain the bank policy rate at 40 percent per annum. Interest rate on the medium-term bank accommodation facility has also been maintained at 30 percent per annum with reserve money target at 20 percent. The above measures are meant to achieve a lower level of monetary expansion by year end, particularly if inflation and other macro-economic developments make it necessary and prudent to do so.
The RBZ has vowed to uphold the measures pronounced in the Mid-Term Monetary Policy Statement in relation to clearing the foreign exchange allotment backlog of around US$175 million within a month to enable the operation of the auction system within the set rules of funding auction allotments within two weeks from the date of auction.
“The MPC also emphasised the need for banks to avoid the use of overdrafts to fund auction allotments except in exceptional circumstances in support of productive sector activities,” it said.
Maximum bid limits will also be maintained at US$500 000 and US$20 000 for primary producers under the main auction and Small to Medium Enterprises (SMEs) auction respectively. Bid limits for secondary users, consumables and services have also been capped at US$100 000 under the main auction.