Interest rate straining local industry: Experts

BUSINESS experts have bemoaned the recent increase in the overnight borrowing interest rate by the Reserve Bank of Zimbabwe (RBZ), saying they are further weighing on constrained companies.

This comes a week after Reserve Bank governor, John Mangudya, in the Mid-Term Monetary Policy, announced an increase in the overnight borrowing interest rate to 70% from 50%, marking a second increase in 2019. In June 2019, the rates were increased from 15% to 50%.

According to Trading Economics website, Zimbabwe’s central bank interest rate is now the second highest in the World after Argentina which is at 83,46%.

Confederation of Zimbabwe Industries (CZI) president Henry Ruzvidzo said the increase is bound to strain the already crippled local industry.

“Management of the exchange rate, interest rates and inflation requires a fine balancing act. Interest rates contribute to the problem as well as a number of other issues such as money supply, confidence, and inflation expectation. The current rapid depreciation of the currency hurts businesses more,” Ruzvidzo said.
Zimbabwe has been battling hyperinflation according to recent statistics, year on year inflation for the month of August is 288,62%.

Economist John Robertson said the RBZ is liable for the growing demand-supply imbalance by continuously controlling percentages of export revenues.
“This imposes constraints on the amount of foreign currency available to the importers, so many of them are forced onto the black market Government should insist that everyone pays the same exchange rate to buy foreign exchange, including the Reserve. It should also insist that the Reserve Bank’s involvement in business activities, such as supplies of fuel, fertiliser, agriculture and electricity, should be left entirely to private sector companies, which would also pay for foreign exchange at a single market-determined rate,” he said

Robertson said the status quo is further driving up inflation and benefiting a few individuals within privileged positions.

“Nobody should be allowed the privilege of buying foreign exchange at a special rate so that they can sell it again at a large profit. The process is driving up inflation and the profits made even add to the growth of money supply without any form of production taking place. Government should trust market forces, but make these forces more trustworthy by not interfering with them and not distorting them to generate unearned incomes for people given privileged position,” Robertson said. – The Zimbabwe Independent