Paul Nyakazeya, Group Digital Editor 
ECONOMISTS and financial experts have cautioned the Reserve Bank of Zimbabwe (RBZ) over its recent decision to hike the main lending rate which they say frustrates access to loans and funding for businesses.
Oxlink Capital chief executive officer Brains Muchemwa
However, the RBZ does not expect to see a rise in inflation and says its decision was informed by the need to curb growing speculative activities in the economy.
In its latest Monetary Policy, the central bank announced that it had increased its main lending rate from 35 percent to 40 percent — to control liquidity in the market and curb borrowings for speculative purposes.
This week, economists and financial service firms said the increase of RBZ’s main lending rate would influence how banks and other lenders price loans and savings vehicles. Chief executive of Mtlikwe Financial Services, Kingston Khanyile, told The Financial Gazette that increases in repo rates by the central bank would be felt by final borrowers rather than financial intermediaries.
“The latest move implies that those planning to borrow are probably going to pay more interest than they did before the latest increase and consumers will feel the effects.
“The 14,28 percent increase in the repo rate has minimal effect to curbing envisaged market speculation when inflation is trending above 320 percent,” Khanyile said.
Former member of the RBZ Monetary Policy Committee (MPC), Eddie Cross, said he was not expecting the central bank to hike the main lending rate since inflation was not rising.
“I was surprised by this decision as inflation rates are declining and I would have thought that the very opposite was appropriate.
“If inflation continues to come down, I would hope we can ease up on the liquidity issue and allow banks to lend more.
“The economy cannot expand without additional access to bank financing … However, if we take the RBZ’s word, then this was aimed at stopping people borrowing for speculative purposes,” Cross told The Financial Gazette.
Eddie Cross Cross is a former member of Parliament and a member of the RBZ’s Monetary Policy Committee.
Equity Axis managing director, Respect Gwenzi, said the move by the RBZ betrayed the weakness of the Zimbabwe dollar.
“We see the move as an admission by authorities that the currency has not yet stabilised. The rate at which the local unit is losing ground on the formal market is steeping and a huge cause for concern.
“A wider gap between the formal and informal exchange rate also points to a currency instability risk over the short-term. Buttressing these fears is the growth in base money supply,” Gwenzi told The Financial Gazette.
Brains Muchemwa, an economist, told The Financial Gazette that while benchmark lending rates of 40 percent per annum appear hawkish, “the fact that this is far lower than the policy targeted 125 percent annual growth in reserve money points to clear arbitrage opportunities that will reward speculative borrowing.”
Muchemwa said with the loan to deposit ratio at 39 percent and the liquidity ratio at 73 percent, the banking sector is excessively liquid.
“Although fiscal policy has done well in managing the domestic expenditures in line with revenues, the huge external borrowings have been our major problem that continue threatening our fiscal solvency hence rendering monetary targeting activities ineffective,” he said.
The Zimbabwe National Chamber of Commerce (ZNCC) said it was against RBZ’s upward review of interest rates as business could not afford further increases.
“We are against the upward revision of interest rates (overnight accommodation) regardless of stubborn inflationary pressures.
“Businesses cannot afford any further interest rate hike worse still given the absence of an affordable relief facility to neutralise negative effects of Covid-19 on corporate performance,” the ZNCC said in its analysis of the Monetary Policy.
The central bank said the decision on interest rates took into account the current liquidity conditions in the market and the need to continue controlling speculative borrowings.
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