THE central bank’s response last week to spiralling inflation spells doom for the country’s industrial sector, a stock broking firm said in its weekly commentary this week, warning that interest rates had become “overly high and therefore
The Reserve Bank of Zimbabwe last week hiked the accommodation rates to between 800% and 850% for secured and unsecured lending respectively, from between 750% and 785%, after inflation surged to 913,6% for the year to March.
“This policy rate stance coupled with a statutory reserve ratio of almost 60% for commercial and merchant banks constitutes a very tight monetary policy,” said Kingdom Stockbrokers in its weekly report to investors.
“A comparison of the current interest rate regime with annual inflation by converting the rates into their annual equivalents shows that borrowers are paying through the nose,” the equities trading firm said.
Real interest rates, said Kingdom in the commentary, were now “overly positive and lenders are making a killing while the policy rate is unjustifiably high”.
“For instance, at 800% compounded daily, the secured accommodation rate gives an annual equivalent of 273 319%. A bank that consistently borrows at such rates will definitely go bust,” Kingdom said.
The 91-day treasury bill (TB) rate of 525% translates to an annual rate of 2 768%, Kingdom said.
This, Kingdom said, represented an unjustifiable transfer of wealth to the investor, which the central bank had no control over, while punishing the bank that it could control.
“This is an indirect weakening of monetary policy as this increases asset price inflation, a situation that results in the co-existence of high interest rates and high inflation. The minimum lending rate of 550% translates to an annual equivalent of 9 250%, a development that explains why credit to the private sector has fallen as banks have scaled down on lending to reduce credit risk,” Kingdom said.
“A comprehensive economic policy package that provides for a relatively smaller positive real interest rate is what is needed not such a crushingly tight monetary policy that is counterproductive,” the stockbroker said in the commentary.