Will the MPS meet your expectations?

By Admire Mavolwane



THE upcoming monetary policy review statement is definitely the talk of the town. The big question is; what is the governor going to say? Almost ever

y section of the economy has drawn up a wish list of measures and initiatives they expect from the governor. In more normal economies, such an event would only arouse speculation on whether interest rates would be raised or reduced and by how many points. In this instance interest rates will be used as a tool to address inflation/deflation pressures; exchange rate movements; and a mechanism to poke, or put brakes on the economy. Our scenario is unique because the governor is expected to address a whole plethora of issues, some of them of a quasi-fiscal nature.


Gold miners through the Chamber of Mines are reported to have written a letter to the governor seeking, or appealing for an immediate review, possibly in the statement, of the gold price from its current level of $2,5 billion/kg to $6,8 billion/kg. The request came against the background of a 24,7% decrease in gold production during the period January to April, with a variety of factors being cited as major causes of the fall in production.
 
Chief amongst these were intermittent power outages with Zesa being accused of not sticking to load-shedding schedules thus affecting production planning, as well as the unfavourable gold pricing structure.


Exporters are obviously calling for a review of the exchange rate which since January 24 has been more or less stagnant at roughly $100 000 to the US dollar. Had the local unit followed the inflation trends, it would be trading at approximately $277 000 to the US dollar on the official market. This calculation is based on the compounded month-on-month inflation rates from February to June of 178%.


At the beginning of the year, the premium of the parallel market rate over the interbank exchange rate had reduced to less than 25%, but has since widened to over 300%. The difference between the official exchange rate and the parallel market rate, the latter being the rate used by suppliers for pricing goods, is deemed to be an unofficial export tax. Industry and the generality of the real economy are also hoping for a return to one economy for all through the removal of all multiple exchange rates, interest rates, fuel prices and other distortions which give rise to arbitrage opportunities.


The agricultural sector will as usual be lobbying for cheap funding and inputs. Already the tobacco farming sector is on record as demanding roughly between $15 and $18 trillion for inputs for the coming season. The justification being that the cost of producing a hectare of tobacco has increased from $200 million last year to $1,4 billion, a figure arrived at using official fuel prices.


Using non-subsidised fuel the cost would be in excess of $2 billion per hectare, they say. In the meantime the CEO of Agribank was quoted in a daily newspaper on June 29 as saying that the agriculture lending bank had disbursed $4,5 trillion under the Agriculture Sector Productivity Enhancement Facility since the beginning of the year. So in adding to the $5,62 trillion, a total of over $10 trillion has been disbursed under the facility whose limit was initially set at $7 trillion. For all intents and purposes though, subsidised agriculture lending and fuel, under whatever name, looks set to be with us for a long time to come.


The common man will be hoping that the 8,9 percentage points decline in the year-on-year inflation rate for June to 1 184,6% from the previous month’s rate of 1 193,5% signals the beginning of a sustainable downward trend in inflation. A further dip in the inflation rate for July is anticipated, mainly for mathematical reasons rather than anything else. July last year with a then unprecedented 47% month-on-month jump heralded the commencement of the inflation spiral that we are in the midst of right now.


We do not expect a similar leap, hence the decline expected in July. What the populace is also appealing for is a concrete and comprehensive package of measures to “tackl”’ inflation. When the enemy is down, even when it is not out of our own making, we may as well make the most of it.


Although the three-month target for the mobilisation of US$2,5 billion is not yet up, various interest groups will be eagerly waiting for an update on the successes and failures of the National Economic Development Priority Programme. As of June 11 US$350 million is reported to have been raised. On its launch, the programme was described as “action orientated and results based”. The nation thus eagerly awaits an update on the progress towards the targets and the fate of those taskforces who appear to be facing challenges in meeting their deadlines, as would be expected in any results-based scheme of assessment.


Investors will be hoping that the arbitrary and frequent policy changes, especially regarding interest rates, will soon be a thing of the past. They would be praying for a well thoughtout and enunciated interest rate policy, which hopefully will be in force for the remainder of the year. Interest rate policies have in recent times exhibited a high degree of perishability, with huge losses and/or profits being incurred or realised as a result. Those caught wrong-footed always cry foul, a situation which does not augur well for the smooth operation of the markets.


However, since the beginning of the month, stock market speculators seem to have reached a conclusion that there will be no surprises in the monetary policy review statement. They have already started taking positions in the blue chip stocks Old Mutual, Delta, PPC, Innscor, Econet and Meikles, thus in a way revealing their anxieties on the future of the economy and the exchange rate.


The big pull factor of these counters has seen the industrial index gaining 13,1 percentage points in the past eight trading days to close this Wednesday at an all-time high of 62 038 655,76 points. It is now only a matter of time before we know whether the speculators have, this time around, accurately second-guessed the governor. In the meantime the bulls are on a rampage, but no doubt some will be caught out like what happened at the end of January this year.