Top economist backs RBZ inflation measures

Business Reporter

TOP economist, Vince Musewe has thrown full weight behind recent measures announced by the Reserve Bank of Zimbabwe (RBZ) Monetary Policy Committee (MPC) saying they have the potential to curb inflation if implemented properly.

The remarks come shortly after the MPC reiterated the need for the bank to remain focused on inflation reduction and putting in place additional policy measures in response to the resurging inflationary pressures and foreign exchange parallel market activities.

Under the new arrangements, the bank policy rate was increased from 60% to 80% per annum while the Medium Term Bank Accommodation facility interest rate was increased from 40% to 50% per annum.

The MPC reviewed upwards the minimum deposit rates for US$ savings and time deposits form 10% and 20% to 12,5% and 25% respectively.

Reserve money growth rates targets were further tightened by reducing the set target of 7, 5% by setting it at 5% for the quarter ending June 2022.

Further liberalising the foreign exchange market by allowing banks to conduct foreign exchange transactions of up to US$1 000 under an arrangement agreed upon between banks and the RBZ, in terms of which individuals with free funds and entities or corporates holding foreign exchange in their foreign currency accounts shall be free to sell foreign currency to banks on a willing buyer willing seller  basis.

Commenting on the developments, renowned economist , Vince Musewe said the measures represents the fact that  the RBZ was between “a rock and a hard place” underscoring that the central bank cannot really control the parallel market because it has a life of its own hence the need for the announced measures.

“But what the central bank can do is to try and slow down the rate of increase of  the parallel market exchange rates with measures which include giving people the alternative through the auction market.

“The other thing is to make borrowing expensive so that people do not borrow for speculative activities because when you borrow at 80% you really need to think how you are going to borrow , reinvest and return it,” he said.

Musewe said this will force people to think twice before they borrow the money and in the process  blocks speculative transactions which destabilise the markets.

“Nevertheless, it still has to be noted that there is a lot of money in the system already where people can use their RTGS which can be used for speculative reasons. This is a very difficult position that the MPC finds themselves in and all they can do is to try and slow down the rates and at least make it less attractive,” he added.