RESERVE Bank governor Gideon Gono yesterday admitted the central bank had been “naïve” to believe that the economy would turn the corner by reducing interest rates to below 1
Government’s cheap funding policy was revised by raising interest rates to rein-in on speculation. Gono increased over night accommodation rates to 160% on secured money and 170% on unsecured money from the RBZ.
In his post-election monetary policy statement yesterday, Gono said the soft approach in policy implementation since the beginning of the year was a mistake.
“In my last monetary policy statement delivered on January 26, we deemed it appropriate to moderate policies and make a more accommodative stance,” Gono said. “That was a mistake we made and we are not ashamed to admit it and we have learnt our lesson from that.
“Interest rates were eased to below 100% in the hope that this would encourage investment and move our recovery programme to the next level.
We believed, perhaps naively, that Zimbabweans would use this opportunity to continue the tremendous efforts of the preceding year 2004 without a push from the monetary authorities,” he said.
Targets have been missed in agriculture, inflation, GDP and foreign currency inflows. Also industry, which benefited from cheap money from the Reserve Bank, is still struggling to repay the loans while some of the money has been abused for speculative purposes.
He said companies which had borrowed money declared “fat dividends”, channelled the money to the parallel market or were involved in “cross-company holding ventures disguised as group treasury functions or investments”.
“We did not expect our incentives and subsidies to fuel speculation and reverse the gains we had achieved with so much pain,” he said.
He also admitted that the largesse, which he gave to the Productive Sector Facility (PSF), had not paid dividend.
Gono now has a tendency to splash funds every time he reviews his policies. In his first review policy in 2004, he splashed $400 billion on troubled banks, which the central bank never recovered.
The governor has splashed more than $2 trillion on the productive sector, which he now blames for fuelling inflation. He has also accused companies of abusing the facility.
Last year he promised to give more than $10 trillion under the Parastatals and Local Authorities Reorientation Programme. Yesterday the governor continued with the wastrel dishing out a further $5 trillion under the new Agricultural Sector Productivity Enhancement Facility, which would be distributed at 20% interest rate.
Under the new scheme $2,5 trillion will allocated for irrigation rehabilitation, tobacco ban construction, milk production and beef cattle restocking.
At least $1 trillion will be given for irrigation while another $750 billion is for horticulture. Dairy farming will be given $300 billion to revive the sector. So far the governor have doled out more than $20 trillion since 2003.