THE Reserve Bank of Zimbabwe this week hiked the key accommodation rate as it swung the pendulum in its fight against inflation, warning the market
to brace for a tighter monetary policy regime ahead of record TB maturities in the next two months.
But the central bank indicated it might not hike the treasury bill (TB) rate, saying its interest rates policy would be guided by the need to stabilise inflationary pressures wreaking havoc in the economy.
“We once again call upon players in the banking industry to carefully calibrate their funding positions in a manner that pitches their sails strong enough to withstand the inevitable liquidity storm that ordinarily comes with the vigorous anti-inflation thrust the Reserve Bank will continue to maintain,” said RBZ Gideon Gono.
The market had been expecting the central bank’s tight monetary policy to become overwhelmed by record TB maturities in May and June, expected to unleash $25 billion and $39 billion into the market during the respective months.
In a memorandum to bank chief executives, Gono said his call to the market was pre-emptive and had been “made in the common interest of balancing the dual virtues of inflation reduction and maintenance of a sound, stable, bankable and developmental financial system”.
Inflation soared to 913,6% year-on-year for March, an all-time high that surpassed the central bank’s forecast, indicating inflation could peak at 800% in March before starting to fall down. The RBZ increased the overnight accommodation rates from 750% to 800% for secured lending and from 785% to 850% for unsecured lending under measures Gono said were meant to fortify the central bank’s framework for achieving its anti-inflation targets.
However, the TB and open market operation (OMO) rates would not be increased, Gono said, noting that the market should not expect “a one-on-one link between the accommodation rate and the TB and OMO rates”.
“The monetary policy update to a certain extent put the market at ease,” said Washington Mehlomakulu, an analyst with Highveld Financial Services.
There had been uncertainty in the market after the RBZ kept the market uninformed over its policy position regarding interest rates after it had not hiked the key bank rates despite a rise in inflation.
The RBZ has consistently raised the key accommodation rate in line with inflation, indicating its resolve to see positive real interest rates in the market as well as its intention to use the blunt money market instrument to curb credit expansion.
Mehlomakulu said the central bank’s resolve not to move TB rates up had been informed by its view that current rates gave real returns to investors.
“The RBZ feels that the yield, compounded quarterly, gives above inflation returns,” said Mehlomakulu.
“The market will now closely watch the inflation rate for April to take a cue over where the central bank might be going in terms of the TB and bank rates. But current pronouncements do not preclude it from increasing the TB rate,” Mehlomakulu said.
Gono said the bank rate was purely meant to discourage borrowing from the central bank and was “a forward looking anticipatory policy rate which seeks to drive inflation from a priori expected levels”.
“It should, however, be noted that the policy framework will continue to be that of maintaining positive real rates on money market instruments,” Gono said.
He warned the corporate sector to avoid borrowings that could destroy their balance sheets during its vigorous fight against inflation.
“The high interest rate environment also calls for corporates and all other players in the economy’s productive systems to proficiently realign their financing and capital structures in a manner that minimises the interest cost burden,” Gono said.