eBusiness Weekly
Business Writer
The 2019 Monetary Policy Statement presented by Reserve Bank of Zimbabwe governor Dr John Mangudya is a step in the right direction but there are still some grey areas, the Confederation of Zimbabwe Industries (CZI) has said.
In a Press statement in response to Mangudya’s MPS, which mainly focused on the establishment of an interbank foreign exchange market, CZI said if the inter-bank market is to generate an exchange rate between the RTGS values and the US dollar to eliminate a major distortion that has been plaguing the Zimbabwean economy, that would be a critical and necessary next step towards rebuilding and growing our economy.
“Of course, it will not happen overnight as economic rebounds take time to build momentum. CZI applauds this bold decision making and with the required level of discipline and sticking to the fundamentals, positive impact is likely to be visible soon,” reads the statement.
In the MPS, Dr Mangudya announced the abandonment of the 1:1 parity between the local bond notes, including RTGS balances against the US dollar.
He said the movement in forex premiums to a range of between 3 to 4 has had negative pass – through effects on inflation.
“The current pricing structure indicates that the majority of transactions in the economy are now largely being conducted in electronic money and bond notes at an implied parallel market exchange rate of around 3 to 3,5 to the US dollar.
“In this respect, continuing to use the US dollar as a unit of account in the economy, when its value has drifted away from the value of the RTGS denominated money supply has brought forth a number of challenges.
“The current monetary arrangements, if maintained, could pose the risk of a costly re-dollarisation of the economy which will move the economy into a recession,” said Mangudya.
He said introduction of a market determined mechanism for trading of US dollars with RTGS balances and bond notes has become imperative.
As a result, Mangudya announced policies aimed at establishing a trading mechanism of RTGS balances and bond notes with international currencies through establishing an inter-bank foreign exchange market to restore domestic competitiveness and promote growth.
Implementation of the policy will serve to make the economy more competitive, said CZI.
The business grouping however expressed concern with the initial indications from the formal market which it said had not performed to the expected levels after the rate went for more than a week glued at a rate of 2,5 to the US dollar.
Post the statement the exchange rate has however started to fall, and by close of trading on Wednesday it had taken its depreciation since trading started on February 22 to 5,6 percent closing the day 2,6481 to the US Dollar.
CZI also felt that while the interbank market had been established as per its recommendation, there were no measures put in place to preserve value.
“We urge swift resolution for these preservation of value issues such as legacy debt, RTGS balances, and pension fund values, among others, to allow for a smooth transition.
“Much still needs to be done; and the truth is that there are stakeholders who have lost value through what has happened,” the statement reads.
Mangudya is, however, on record saying value preservation will be done through managing inflation, while inflation linked instruments would be another option.
CZI also called for strengthening of national institutional arrangements such as statutory independence of the Reserve Bank “which should be complemented by strong safeguards that will ensure monetary discipline in line with international best practice”.
