This week’s decision by the central bank to keep rates unchanged will discourage banks from lending to the private sector, economic analysts said this week.
The monetary policy committee (MPC) resolved at its October 2 sitting to maintain a status quo on the policy rate for overnight accommodation at 35% and the medium-term lending rate for the productive sector at 25%.
But economists said banks will only improve their intervention to the private sector if rates were hiked in line with year on year inflation trends.
At current levels, they said, banks were lending at a loss because year-on-year inflation was way over 600%.
Economist John Robertson said the 35% overnight accommodation rate is extremely low when inflation is high. He said this explained the low loan to deposit ratio in the market. The loan to deposit ratio as of July 2020 was 37,7%, according to the RBZ. Latest inflation figures from Zimstat show that the year-on-year inflation rate for September was 659,4%.
“If you convert what banks are lending to US dollar, it’s a small amount. Banks are lending less than 30 % of their deposits. They are getting most of their money from transactions, which is improper,” Robertson said.
“Banks are now just facilitating movement of money.”
Robertson said details of a $2,5 billion unveiled by the MPC for private sector lending remained vague.
He said, government should focus on creating an enabling environment instead of lending to businesses.
“People need to borrow from banks, not the government. The government needs to assist business through regulation, they should fix the ease of doing business instead of just promising,” Robertson said.
He said the government was preoccupied with being in control of investors through a number of requirements and licenses.
“What manufacturing requires is an environment that enables investors to make money. I would like the government to back off and clear investment to the investor and not say here is money from the government. In agriculture, instead of government guaranteeing loans, there should just be security of tenure. We need to do it right,” Robertson added.
He said the existence of a foreign currency black market was a sign of failure on the part of monetary and fiscal authorities to stabilise the economy.
“They talk about tracking people who are involved in illegal transactions instead of setting rules to prevent it from happening. The black market should not exist. It is an illustration of failure. Too many people in authority are making money because of the black market.”
Economist Prosper Chitambara said maintaining the overnight facility rates was aimed at ensuring the cost of borrowing money remains stable.
However, he said, its chances of success were limited due to high inflation.
“Increasing those rates will have a domino effect on interest rates across the financial sector, but when you also consider those policy rates, high levels of annual inflation then it means that lenders or creditors are essentially lending money at a loss in real terms,” Chitambara said.
“When you have high inflation and low policy rates it actually means your real interest rates are actually negative which puts a disincentive on domestic credit or lending.”
Chitambara said the $2,5 billion facility was a positive step, but not adequate when the manufacturing sector alone required US$2 billion.
He said funding should have a bias towards SMEs.
Financial analyst Evonia Muzondo said banks had no appetite for lending because of the obtaining high risk for non-performing loans.
“In as much as 35% is below the inflation rates, this is too much in the sense that very few companies and individuals can actually afford it. That’s why the loan to deposit ratio is low,” she said.