Harare (New Ziana) – Zimbabwe’s macro-economic environment remains stable on account of a robust monetary policy stance and fiscal sustainability strategies being pursued by government as well as positive global financial developments, the Central Bank said on Thursday.
In his Monetary Policy statement, Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya painted a positive outlook for Zimbabwe’s economy despite challenges posed chiefly by the Covid-19 pandemic.
As such, the RBZ expects the elaborate measures put in place to deal with Covid- 19, including a widely commended vaccination programme, to lessen the pandemic’s impact on the economy.
Treasury expects Zimbabwe’s economy to expand by 7.8 percent in 2021 on the back of strong growth in agriculture, mining and manufacturing.
And, in line with Finance Minister Professor Mthuli Ncube’s Mid-Term budget review last week and the need to reinforce the obtaining macro-economic stability, Dr Mangudya also did not announce any policy shifts.
“Overall, the economy is on the right track. It is rebounding. The outlook is positive on account of the remarkable hawkish monetary policy stance being pursued by the Bank, government’s strong fiscal sustainability and the positive global financial developments.
“This stable and positive macroeconomic environment points to the need for the Bank to continue with its current monetary policy stance to support the robust economic growth of at least 7.8 percent in 2021, while continuing to reduce annual inflation to the desired level of around 30 percent by the end of December 2021,” he said.
In terms of interest rates, Dr Mangudya said the apex bank would maintain its overnight accommodation of 40 percent and the medium-term lending rate for the productive sector of 30 percent in order to control money supply.
“The Bank shall continue to review the policy rates in response to the downward inflation trajectory.”
The quarterly target for the growth of reserve money for the remaining six months of 2021 will remain at 20 percent while priority will also be given to the strengthening of the foreign exchange auction system- which has, since launch in mid-2020, availed a total of US$1.72 billion to the productive sectors of the economy.
“The Bank will start to set aside foreign exchange resources to build the country’s foreign exchange reserves to anchor exchange rate stability and to cope with transitory exchange rate shocks in the national economy,” he said.
To deal with the foreign exchange auction allotment backlog, Dr Mangudya said the Bank would, among other strategies, utilise existing letters of credit facilities for strategic imports in order to lessen demand on the auction system and source, from government, some of the foreign exchange balances in the exchequer account.
To address the gap between the official and parallel exchange rates, the Central Bank would continue tightening money supply, increasing the attractiveness of the local currency discouraging rent-seeking behaviour so that; “the local currency complements rather than competes with the USD.”
Dr Mangudya said the Central Bank’s tight monetary policy had also seen inflation subside.
“In the previous monetary policy statement, the Bank projected inflation to decline to 55 percent by July 2021. Encouragingly, the policies being implemented by government and the Bank have managed to anchor inflation expectations as attested by a significant decline in inflation from 837.5 percent in July 2020 to 56.4 percent in July 2021.
“Reflecting stability in the exchange rate, notable price increases in 2021 have mainly been recorded in regulated services including electricity, education, communication, and transport.”
Meanwhile, Dr Mangudya said the country’s banking sector remained sound through government support and regulatory relief measures.
He said the banks remained adequately capitalized, with aggregate core capital of ZW$57.54 billion as at 30 June 2021, an increase of 8.09 percent, from ZW$53.18 billion as at 31 December 2020.
“Total banking sector loans and advances increased by 73.27 percent from ZW$82.41 billion as at 31 December 2020 to ZW$142.79 billion as at 30 June 2021. During the period under review, financial intermediation remained stable as reflected by a loan to deposit ratio of 45.84 percent. This position reflects that there is scope for banking institutions to enhance their financial intermediation role,” he said.