The Sunday Mail
The Confederation of Zimbabwe Industries (CZI) has called on Government to stop flooding the market with Treasury bills as these will leave the monetary sector vulnerable.
This reduction will be part of the economic sterilisation programme, which will counter price increases and cash shortages caused by a balance of payments deficit.
Sterilisation is a form of monetary action in which a central bank seeks to limit the effect of inflows and outflows of capital on the money supply.
Sterilisation most frequently involves the purchase or sale of financial assets by a central bank, and is designed to offset the effects on the money supply caused by a balance of payments surplus or deficit.
The industry feels the quick implementation of the programme will help the Government to arrest price increases and inflation.
CZI president Mr Sifelani Jabangwe told The Sunday Mail Business that announcing a sterilisation programme to the market will send a strong signal of the Government’s commitment to price stability and pre-empt speculative behaviour.
“In order to deal with liquidity, price stability and RTGS imbalances, the central bank should enforce liquidity ratios requiring banks to keep a percentage of money in the RTGS account related to total deposits to ensure that RTGS money remains tight.
“Central bank should negate potentially harmful impacts of capital inflows — such as currency appreciation and inflation — as they can both reduce export competitiveness.
“Government borrowing for deficit financing to be strictly on an open market basis with banks and other players with excess funds participating freely.
“RBZ should stop lending to Government immediately in order to deal with growing mismatch between RTGS and nostro money,” said Mr Jabangwe.
The central bank is expected to complement the aforementioned measures using monetary tools such as Statutory Reserve Requirement (SRR) or the liquidity ratio to manage excess liquidity going forward.
It is also expected to implement the sterilisation programme in the forecast budget deficit of $672 million to ensure that the amount does not further increase to unprecedented levels.
Economist Mr Luckson Zembe said the central bank should spread the budget deficit evenly over the remaining time period.
“We would like the central bank to contain budget deficit and we expect the $672 million to be spread over the next 12 months and there should be a compulsory issue of Treasury bills of $48 million each month allocated among the banks in a predetermined fashion.
“We might require each bank to subscribe according to the average percentage of RTGS liquidity that the particular bank has held over the last 12 months,” he said.
The above mentioned actions will reduce pressure on the forex market and when combined with the ongoing injection of foreign exchange via the nostro stabilisation programme will result in a marked reduction in the parallel rate.
If the premium stays stable then the economy will respond positively to the devaluation that has occurred.
The aim of the sterilisation programme will be to ensure that the premium remains stable at current levels and this will ensure that the crowding out of the private sector is managed and the private sector will continue to thrive.
Finance and Economic Planning Minister Patrick Chinamasa said RBZ is in the process of putting in place policy measures to sterilise the impact on the stock of money supply or RTGS balances within the economy.
This focuses on consolidating the fiscus in order to restore and maintain macro-economic stability, as well as financial sector resilience, that way rebuilding the necessary confidence for promoting economic activity.
