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Ex-RBZ advisors under fire

FIDELITY MHLANGA

THE Zimbabwe National Chamber of Commerce (ZNCC) has slammed the Reserve Bank of Zimbabwe (RBZ)’s “underachieving” outgoing monetary policy committee (MPC) saying it lacked depth and expertise to drive monetary policy.

In its analysis of the monetary policy statement (MPS) released two weeks ago, the ZNCC came short of describing the outgoing MPC as a political tool.

The ZNCC said this ineptitude saw the outgoing MPC receiving no mention in the latest MPS announced a few days after Finance minister Mthuli Ncube rang midnight changes that ushered a new era in central banking.

Ex-Nedbank managing director Charity Jinya, academic Albert Makochekanwa, economist Persistence Gwanyanya and POSB Bank chairperson Mathilda Dzumbunu came in to help the RBZ.

Another academic Daniel Makina completed the team that will join RBZ governor John Mangudya and his two deputies in making crucial monetary policy decisions.

“There have been three MPCs in the last decade,” said the ZNCC, casting doubts over central bank independence in Zimbabwe and “authoritarian regimes”.

“The first appointed by Finance Minister [Tendai]Biti was made up of professionals from academia, an economist, now deputy governor of the RBZ, and economists from research institutions and the financial market.

After the change of government in 2013 that MPC was first dormant and then declared redundant by governor Mangudya who famously said that under dollarisation there was no need for an MPC,” said the ZNCC. In 2009, Zimbabwe adopted the multicurrency system, which took away several central banking roles including cash printing and setting interest rates.

“The second committee, appointed by Finance minister Mthuli Ncube, was notable for its lack of financial and economic expertise. Although the RBZ repeatedly claimed that decisions on interest rates and exchange rate policy were made by the MPC, its replacement under unclear circumstances was followed by the latest MPS in which the MPC is not mentioned.

The case for central bank independence is widely accepted in advanced economies, but in emerging markets, there is much less enthusiasm for independence because governments, especially authoritarian regimes such as in Zimbabwe, believe that monetary policy should be under the direct control of the state. The evidence shows that independent central banks are more likely to succeed than those that are, as in Zimbabwe, treated as just another arm of the politburo. Zimbabwe rejected central bank independence at the outset, and nothing has changed,” noted the ZNCC.

It said there had been no watertight correlation between the exchange rate and inflation.

“It can be argued – as the authorities do – that money supply drives the exchange rate which in turn is the major driver of inflation. It is for this reason that reserve money was selected as an anchor, albeit an impractical one,” said ZNCC.

“Ministerial and official criticisms of businesses whom they accuse of profiteering ignore the fact that the bulk of Zimbabwe’s imports come from South Africa, China and the United Arab Emirates and it is their exchange rates against the Zimbabwe dollar that influence prices in the shops, not the auction rate against the United States dollar. In Zimbabwe dollar terms, rand prices are up some 13%.”

Zimbabwe’s year-on-year inflation rate declined to 321,59 % in February, data from the Zimbabwe National Statistics Agency (Zimstat) have shown. Inflation rate opened the year at 362,63%, up from 348,59% in December 2020.

Economist Victor Bhoroma highlighted that while annual inflation was still high, the declining month-on-month rate was good for economic planning.

“Inflation is still high and unsustainable for most economic activities. However, the marginal decline in month-on-month inflation rate is a welcome development for production as it maintains consumer confidence and buying power. This means that effective demand for various goods and services in the market improves,” Bhoroma said.

“It also allows for better planning on contracts, forward pricing, debt repayment and sourcing of raw materials. The expectation is that the rate declines to a double and single digit figure within 2021 to maintain income at all economic levels and boost savings,” he said.

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