LOW returns continue to stifle the appeal of money market instruments in Zimbabwe, amid persistently high inflation in the southern African country’s economy.
Even though the central bank last year raised its policy rate and medium-term lending rate to 200 percent and 100 percent, respectively, this was still below inflation, which was reported at 243,8 percent in December.
The sentiment in the market is that Zimbabwe dollar-denominated money market instruments will continue to offer sub-inflationary returns in the foreseeable future.
Fitch Solutions sees triple-digit inflation persisting through the first half of 2023.
The British research firm, however, expects inflation to ease over the second half of 2023 and predicts it to close the year at 55 percent.
The Treasury also expects inflation to slow down to double digit levels this year, underpinned by a continued tight fiscal policy stance, a stable foreign exchange market, strengthened government procurement processes, and the sale of gold coins, among other measures.
“Supportive monetary and fiscal policies, as well as coordinated interventions by the authorities, have been central in sustaining the current inflation deceleration and exchange rate convergence path.
“Going forward, this policy objective will be maintained and adjusted where necessary,” Finance minister Mthuli Ncube said in his 2023 budget statement late last year.
Meanwhile, US dollar-denominated money market instruments have been churning out decent returns.
A survey by this publication found that rates for US dollar-denominated instruments ranged between 5,5 percent and 6 percent, for tenors of 30 days to 90 days.
But experts are urging authorities to quickly de-dollarise the economy to build confidence in the local currency, and curb rising inflation.
“The government should consolidate policies that inspire confidence in the local currency,” Chris Mugaga, the Zimbabwe National Chamber of Commerce chief executive said.
Economist Vince Musewe also said the government, as the biggest spender in the country, needed to promote the wider use of the local currency to mitigate the current dire economic situation.
“As long as we have a multiple currency regime, everyone will always migrate to the stronger currency. The problem will only be solved when we achieve full de-dollarisation and business has confidence in the local currency.”