Monetary Policy expected this month

THE acting Reserve Bank of Zimbabwe governor Charity Dhliwayo is expected to present her  monetary policy statement (MPS) before the end of January, with hopes that she will come up with a cocktail of measures to ensure that the financial sector becomes stable.

Economic analysts said the monetary policy was coming against a background of decelerating economic growth due to a variety of challenges facing the economy, including limited capital sources at a high cost relative to regional levels.

The World Bank’s chief country economist for Zimbabwe, Nadia Piffaretti, last week said the country’s economy would grow by around 4,2 percent this year, lower than the government’s projection of 6,2 percent due to a slowdown in key sectors of the economy.

The analysts said 2014 was likely to see the consolidation of the financial sector through mergers and acquisitions as the new minimum capital requirements were too high and a number of players in the sector would struggle to meet them.

Bank failures over the past 15 years have affected people’s confidence in the banking sector, a situation which is detrimental to the sustained development of the country.
Economist, John Roberston, said the fragility of the banking sector had affected domestic savings over the years, and hence it was important for the central bank to come up with new measures to stimulate savings in the country.

 “It is critical for the monetary authorities to reassure the market that the banking sector is safe and sound through this monetary policy,” said Robertson.
The market wants reassurance that appropriate measures would be put in place to ensure that banks that do not meet the new capital requirements will have a safe exit from the sector.
It would appear the central bank would still have limited capacity to deal with the current challenges in the economy. Firstly, since Zimbabwe has no currency of its own, the central bank is incapacitated from significant market interventions because of its lack of control over the US currency.

Moreover, the absence of a substantive governor makes it impossible for the RBZ to make substantive decisions.
Since dollarisation, the RBZ lost its role as the government’s banker, a role that has been played by privately-owned CBZ Bank.
Chinamasa however, promised that with the planned recapitalisation, the RBZ would take back its role from CBZ Bank.

Without enough capitalisation, the central bank has been unable to intervene quickly in bank failures by detecting signs of fragility early.
Since dollarisation, several banks — Trust Bank, Interfin Bank, Renaissance Merchant Bank, Royal Bank and Genesis Bank — have collapsed.
Several others are currently tottering on the brink of collapse.

Economic commentator, Eric Bloch, said he expected the acting governor to give an “in-depth analysis” and update of compliance by banks.
During his last monetary policy statement, former RBZ governor Gideon Gono, said attendant liquidity shortages coupled with the absence of an active inter-bank market, limited access to affordable external credit lines and absence of lender of last resort compounded the domestic operating environment for banks since the economy was dollarised in February 2009.

 “Against this background, the Reserve Bank continues to vigilantly monitor and rigorously apply risk based supervisory techniques geared at facilitating the early detection of potential bank fragilities,” he said.
He said lending rates quoted by banks last year remained high, against the backdrop of deep-seated liquidity shortages as a consequence of limited access to external credit lines and adverse balance of payments developments.

The lending rates also reflected high premiums charged by some banks, irrespective of their cost structures.
Consequently, expectations are for an expansionary policy in the hope that the resulting credit rates would help stimulate economic growth.
Dhliwayo would, however, be walking a tight rope given the limited monetary policy tools available to achieve most of the tasks at hand.

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