Page 8 - WEEKLYDIGEST 13042022

BUSINESS April 13-18 2022 Weekly Digest 8

Balancing economic demands

TAFARA MTUTU
HE monetary policy c.ZW$$300/USD in the past the bank and in terms of which quarterly reserve money growth We also observe that the par-
committee (MPC) of the week. individuals with free funds and will limit the Zimbabwean dol- allel market is strongly driven by
Reserve Bank of Zim- The resolutions from the entities/corporates holding for- lar (ZW$) balances available after transactional activity that does
babwe met on April 1, meetingincluded: eign exchange in their foreign willing-buyer-willing-seller cur- not include nostro balances, and
T2022 to discuss meas- Reviewing upwards the Bank currency accounts (after meeting rency transactions that can be is- these often take place outside
ures to contain the impact of Policy Rate from 60% to 80% per the statutory surrender require- sued as loans while the increase the formal system to a larger
events unfolding in both the local annum; ments) shall be free to sell foreign in the bank policy rates will con- extent. Hence, these resolu-
and international macroeconom- Reviewing upwards the Medi- currency to banks on a willing- trol the availability of any “cheap tions could be limited in their
ic environment. um-Term Bank Accommodation buyer willing-seller basis. money” in the economy, which e ectiveness.

The global economic environ- Facility Interest Rate from 40% to We opine that these measures could be used for speculative However, the resolutions could
ment has been rocked by have the goal of borrowing. adversely impact the productive
the Russia-Ukraine con- leveraging o The theoretical impact of these sector,which currently bemoans

flict, which has driven pric- The conflict has been key in the growing measures will be to contain the the short-term nature of loans

es of soft and hard com- nostro balanc- depreciation of the ZW$ while from banks at current lending
modities upwards on the the recent surge in global in- es in the coun- easing the pressure on the auc- rates. The increase in the policy
back of a myriad of factors try — currently tion system as well as demand for rate will likely increase the bur-

such as: flation data, which has be- accounting for the SDR allocation from the IMF. den of debt financing for bor-

Oil supply and demand c.50% of the However, the question remains, rowers through higher interest

disequilibrium, gun filtering into Zimbabwe’s total value of “Are these measures su cient rates in the short to medium

An investor flight-to- deposits held to contain inflation and currency term. We note that companies

safety in real inflation- economy. by banks - to depreciation in Zimbabwe?” and that extensively rely on debt for

hedging assets such as ease the cur- the answer points to these meas- working capital needs will be

gold and silver, and rency volatility. ures being somewhat e ective exposed. For example, SeedCo
Exports supply con- The likely role in the short-term but still inad- Limited is one such company
cerns for softs like corn and of Resolution equate over a longer term. that could be a ected by the

wheat. (5) is to carefully Zimbabwe is chronically de- increase in interest rates in the

The conflict has been key in the 50% per annum; incentivise holders of nostro bal- pendent on imports of raw ma- medium term.
recent surge in global inflation Reviewing upwards the mini- ances to dispose their currency terials whose costs have been The seasonal business typi-

data, which has begun filtering mum deposit rates for ZW$ sav- at rates that are better than the steadily increasing in response to cally requires debt capital to

into Zimbabwe’s economy. Zim- ings and time deposits from 10% o cial rate but below the parallel global developments. maintain production before the

babwe’s Year-on-Year inflation and 20% per annum to 12,5% and market rates. The figure of US$1 Hence, global inflationary pres- selling season for seed takes o .

has taken on a renewed upswing, 25%, respectively; 000 is also likely to be increased sures will continue to ripple into On the other hand, financial ser-

moving from 50,3% in August Further tightening monetary over time as the Central Bank as- local inflation in the absence vices businesses look to pin the

2021 to 72,7% in March 2022 on policy by reducing the quarterly sesses any loopholes that could of su cient local supply of raw resilience of their lending opera-

the back of a combination of lo- reserve money growth target dull the intended e ects of the materials. Persistent ine cien- tions on the frequent revisions of
cal and global developments. from 7,5% to 5% for the quarter resolution. Resolutions (1) to (4) cies in the auction system and interest rates in line with inflation

Furtherto the ripple e ects ending June 2022; and will likely support the intended anticipated additional currency figures.

of global inflation on Zimba- Further liberalising the foreign impact of Resolution (5) by en- demands on the back of lower-
bwe’s economy, local currency exchange market by allowing suring that liquidity received from than-expected nationwide grain-
rates on the parallel market have banks to conduct foreign ex- these currency transactions will deliveries in 2022 also pose as Tafara Mtutu is a research an-
strongly depreciated in the past change transactions of up US$1 not be channelled to the parallel strong headwinds for the latest alyst at Morgan & Co Research.
three months, moving from c. 000 under an arrangement market. MPC resolutions’ measures with — tafara@morganzim.com or
ZW$$195/USD in January to agreed upon between banks and The resolution to tighten the regards to currency volatility. +263 774 795 854.