Reserve Bank maintains policy rate

THE central bank maintained its policy and overnight accommodation rates yesterday, saying this was important to contain inflationary pressures and tie down money supply growth.

Yesterday's move to maintain rates came a week after Finance minister Mthuli Ncube largely kept current policies when he presented the mid-term fiscal policy statement last week.

Ncube also said current interventions were working and there was no need to tamper with them.

The Reserve Bank of Zimbabwe (RBZ) has placed fighting inflation top priority to bring it down to about 30% by year end, from about 336% in December last year.

Inroads have been made towards achieving this goal after latest data showed last week that the inflation rate slowed to 56% in July, from 106% in June.

"The bank's overnight accommodation of 40% and the medium-term lending rate for the productive sector of 30% will be maintained in the short term, in order to control money supply and curb speculative activities," central bank governor John Mangudya said in a presentation of the Mid-term Monetary Policy Statement in Harare.

"The bank shall continue to review the policy rates in response to the downward inflation trajectory," he added.

Mangudya said a cap on the interest rates at which banks can on-lend the proceeds from the medium-term lending facility would also be maintained at 10% above the borrowing rate.

He said this was crucial to help productive sectors recover.

Already, capacity utilisation in the manufacturing sector is projected to rise to 61% by the end of 2021, from 47% last year.

Mangudya said the RBZ will prioritise strengthening the Zimbabwean dollar in the second half of the year to protect it from a sea of headwinds that have seen it lose traction against the United States dollar.

"The bank will start to set aside foreign exchange resources to build the country's foreign exchange reserves to anchor exchange rate stability and to cope with transitory exchange rate shocks in the national economy," Mangudya said.

"The bank is addressing the gap between the official and parallel exchange rates through tightening money supply, expunging the foreign exchange allotment backlog, increasing the attractiveness of the local currency so that the local currency complements rather than competes with the United State dollar."