THE central bank will issue government paper to mop up excess liquidity on the Real Time Gross Settlement platform to reduce inflationary pressure in the economy, Reserve Bank of Zimbabwe governor, John Mangudya, said yesterday.
There has been a substantial increase in money supply in Zimbabwe over the past year as a result of government’s expansionary fiscal stance, which increased RTGS money within the banking system from $954 million in 2016 to $1,732 billion in 2017. The increase was largely due to an injection of cash created by the central bank through the RTGS to finance government expenditure and pay for maturing treasury bills and bonds, which increased from $3,2 billion in 2016 to $5,2 billion at the end of 2017.
In his monetary policy statement presented yesterday, Mangudya said the prevailing situation was not ideal because domestic creation of money under dollarisation had resulted in inflation.
“Under dollarisation, financing of the deficit should ideally be from foreign sources in order to mitigate the domestic creation of money which is not matched by foreign exchange. It is in this context that the bank will continue to ensure that the level of money supply is supportive of the desired inflation target of between three to seven percent,” he said.
One of the measures which the apex bank is putting in place to correct this situation as part of its monetary policy this year is the issuance of debt securities to mop up excess liquidity; the governor announced that the bank would issue a mid-term government paper during the year.
“The bank is strengthening its liquidity management systems to mop RTGS money and make it more attractive for investment. The bank will achieve this through issuance of medium-term government paper to improve monetary policy stance,” Mangudya said.
The governor said the bank had already made progress with regards to the liquidity mop-up exercise; its savings bond introduced last year in October had raised $165 million so far.
“Already the bank has issued a seven percent savings bond, whose uptake has been satisfactory, raising $165 million in three months (from) October to December 2017,” Mangudya said.
In the same spirit, the bank plans to reintroduce the auction system for debt securities to promote fluid price discovery of the securities and thus allow for the fluency of the open market for the securities.
“The reintroduction of an auction system for treasury bills and bonds will bring in transparency as well as allow a discernible yield curve to be developed,” Mangudya said.
The governor said the central bank would continue to look into the possibility of introducing other related measures to deal with the issue of excess liquidity in the market.
“The bank is also assessing the possibility of reintroducing open market operation tools during the course of the year in order to deal with excess liquidity in the market,” he added.
Open market operations refer to the buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Securities’ purchases inject money into the banking system, while sales of securities do the opposite.
2018 Monetary Policy Statement highlights
*Exports up 37 percent to $3,475 billion between January to November 2017 from $2,540 billion in the previous period of 2016
*Gold, Tobacco, nickel, ferrochrome and diamonds constituted 80 percent of total exports
*Imports up 4,5 percent to $4,932 billion between January and November 2017, from $4,722 billion over the corresponding period of 2016
*Trade deficit narrowed from $2,181 billion in 2016 to $1,456 billion in 2017
*Debt inflows decreased to $315,6m last year from $544,7m in 2016 and $1,014bn in 2015
*Net FDI declined to $235,4m in 2017 from $$343m in 2016
*Portfolio investments decreased to $41m in 2017 from $80m in 2016
*NPLs finished the year at 7,08 percent in December 2017, down from 8,63 percent in September against a five percent benchmark
*Total bank profits jumped to $241,94 million in 2017 from $181,06 million in 2016
*Loans went up to $3,8 billion from $3,69 billion in June 2017. Lending to productive sectors, mainly manufacturing and agriculture, accounted for *74 percent of total lending
*Foreign currency retention remains at 100 percent except for gold, diamond, platinum, chrome and tobacco. Funds available to exporters for use within 14 days.
*Private diamond, platinum and chrome producers foreign currency retention levels revised upwards to 35 percent from 20 percent
Seven percent savings bond raises $165 million in three months
*Auction system for treasury bills and bonds will be reintroduced
*RBZ to mop up excess liquidity through open market operations