Omega Ukama 
14
THE Reserve Bank of Zimbabwe this week cut its benchmark interest rate by 20 percent to 130 percent, amid concerns that a Zimdollar credit squeeze was threatening stability.
It comes as the Zimbabwe National Chamber of Commerce (Zncc) had raised the alarm, saying high interest rates were keeping lending in the domestic unit low, with the central bank announcing recently that foreign currency-denominated loans constituted close to 95 percent of the banking sector’s book.
“The Monetary Policy Committee (MPC) noted that the negative impact of emerging global risks, including subdued global growth emanating from geo-economic fragmentation and the effects of tight monetary policy, high interest rates, credit squeeze and low international commodity prices, could pose significant risks to the current stability in the domestic economy,” reserve bank governor John Mangudya said in a statement this Tuesday.
Reserve Bank of Zimbabwe governor, John Mangudya
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The country’s borrowing rates were raised last year to curb speculative borrowing, which the apex bank said was encouraged by sub-inflationary rates and stocking inflation.
The policy rate, which acts as a baseline for interest rates in the economy, was initially raised to 200 percent before being reduced to 150 percent after inflation fell slightly.
In its recent submissions to the Treasury for the 2024 national budget, ZNCC said high interest rates had failed to bring down inflation due to a lack of supporting measures, particularly in the way of reforms towards “a market-determined exchange rate”.
“The monetary authorities have promised those reforms over and over, even in the recent monetary policy statement.
“The downside risk of maintaining a high Zim dollar interest rate, as noticed over the past 12 months, is the growing rate of lending in foreign currency and the somewhat declining use of the local currency on the market.”
This also comes as a lack of clarity on the government’s currency roadmap beyond 2025 has seen banks restricting lending on longer tenors, worsening the credit crunch in the economy.
“There is a need for clarity in terms of the multi-currency regime… the hazy outlook post 2025… is threatening the forecasted GDP numbers due to credit collapse in the economy,” ZNCC said.
“The policy position on currency has weakened the mortgages market.
“The majority of financial institutions can no longer afford to enter mortgage arrangements given that most of these average five years in the Zimbabwean market,” it added.
Meanwhile, the central bank has standardised foreign currency retentions on exports across all sectors at 75 percent.
“The net effect of this measure is to increase foreign exchange resources available to the bank and the government to meet foreign exchange requirements for the settlement of national and international obligations,” Mangudya said.
