THE Reserve Bank of Zimbabwe (RBZ) has hiked its bank policy rate, against which banks benchmark interest rates, from 35 to 40 percent, as part of new policy measures announced yesterday to buttress the prevailing economic stability.
This comes as the bank said the economy was poised for strong growth in the short to medium term, amid stable exchange rate and low inflation, buttressed by the resilience and hard-work of its people.
Announcing the new policy measures, RBZ governor Dr John Mangudya, said earlier interventions introduced last year have been effective towards stabilising the economy.
He said the bank continues to successfully implement a conservative monetary targeting framework in order to contain money supply growth, reduce pressure on the exchange rate as well as root out inflationary pressures in the domestic economy.
As such, the central bank chief said it was evident the bank’s focus should remain on monetary and financial system stability.
Dr Mangudya said the measures, contained in the 2021 monetary policy presented yesterday, were with immediate effect.
The policy rate is the rate the monetary authority sets in order to influence the evolution of the main monetary variables in the economy such as consumer prices, exchange rate or credit expansion.
Apart from raising the bank policy rate to 40 percent per annum, the central bank also hiked the medium term lending rate for productive sectors from 25 to 30 percent per annum.
“The decision interest rates takes into account the current liquidity conditions in the market and the need to continue controlling speculative borrowing,” Dr Mangudya said.
The apex bank also increased statutory reserves from 2,5 percent to 5 percent for demand and/or call deposits and maintained the rate at 2,5 percent for time deposits. The variation of statutory reserves by maturity is expected to incentivise banks to hold long-term liabilities or time deposits for long-term lending in the medium-term.
Further, the bank will maintain the conservative monetary targeting framework in 2021 to be achieved by reducing the quarterly reserve money growth from the 25 percent quarterly target set in 2020 to 22,5 percent in 2021.
“The reserve money target of 22,5 percent is consistent with the targeted end of year inflation of below 10 percent and projected 7,4 percent economic growth rate of the economy,” the governor said.
Measures in the monetary policy are thus expected to support the attainment of the forecast economic growth of 7,4 percent in 2021 and to control inflation below 10 percent by end of December 2021.
The focus on fostering price and financial stability in the economy, Dr Mangudya said, required team effort by everyone to enhance self-discipline and compliance and to cherish economic progress.
He said sustaining current economic stability brought about by a conservative monetary targeting framework, auction system, fiscal discipline and efficacy in the mobile banking was paramount and need to be preserved, safeguarded and sustained.
The bank said it will continue to implement measures to maintain and enhance the stability of the foreign exchange auction market, one of the key factors for anchoring price and inflation stability. On account of policy measures in the monetary policy statement, the bank anticipates annual inflation to close the year below 10 percent and the monthly rate to average less than 3 percent. The annual inflation reached 362,6 percent in January this year from 348,6 percent a month earlier, but down from the post dollarisation record high of 863 percent in August last year.