The Sunday Mail
Golden Sibanda
Key sectors of the economy were allotted nearly US$1 billion from the foreign currency auction system since its inception on June 23 last year, with the bulk of the funds going towards procurement of raw materials, equipment and machinery.
Reserve Bank of Zimbabwe (RBZ) governor, Dr John Mangudya said the improved allocations had minimised local pricing distortions by curtailing speculative borrowing and the use of parallel market rates to set prices.
“Consequently, the parallel exchange rate premium has reduced to a tolerable band of up to 20 percent, consistent with experiences in other countries.
“In addition, the establishment of an appropriate market-based exchange rate system has assisted in dampening pressures on inflation,” Dr Mangudya said in the 2021 Monetary Policy Statement (MPS) released on Thursday.
US$795 million had been allotted as at February 9 this year since the auction began.
More than 70 percent of total foreign currency allotted on the auction has gone towards importing raw materials, machinery and equipment.
Pharmaceuticals and chemicals, and fuel and electricity took up about 11 percent. Export earnings have been the main source of funds for the auction market through voluntary liquidations and surrender requirements on export receipts, including domestic foreign currency transactions.
Working closely with banks, Dr Mangudya added, the central bank managed to resolve glitches and payment backlogs experienced last year on settlement of forex alloted on the auction.
Notwithstanding the Covid-19-related challenges, the Bank is optimistic projected economic growth of 7,4 percent this year is achievable on the back of forecast significant growth of the agricultural output, fiscal sustainability and the central bank’s focus on price and financial system stability.
Annual inflation is expected to close the year below 10 percent.
Macroeconomic stability and the progressive restoration of market confidence are some of the key milestones achieved by the central bank so far.
Last year, the RBZ adopted a three-pronged approach to economic stability and growth, centred on the discovery of a market-determined exchange rate — critical for price and exchange rate stability — through the foreign exchange auction system.
It took measures to ensure a safe, sound, credible and stable financial sector through the pursuit of a more conservative monetary targeting framework to keep inflation and the exchange rate in check.
Meanwhile, the RBZ has hiked its bank policy rate — against which banks benchmark interest or lending rates — from 35 to 40 percent, as part of new policy measures to buttress the prevailing economic stability.
Apart from raising the bank policy rate to 40 percent per annum, the medium-term lending rate for productive sectors was revised from 25 percent to 30 percent per annum.
Statutory reserves were increased from 2,5 percent to 5 percent for demand and/or call deposits.
The rate was maintained at 2,5 percent for time deposits.
Monetary authorities plan to maintain a conservative monetary targeting framework this year.
The quarterly reserve money growth has been reduced from the 25 percent quarterly target set in 2020 to 22,5 percent in 2021.
