HomeLocal NewsEconomy on rebound

Economy on rebound

THE Zimbabwe Independent today hosts a webinar on the Mid-term Monetary Policy presented a fortnight ago by the Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, who is the keynote speaker.

The other panellists are Confederation of Zimbabwe Industries CE Sekai Kuvarika,  Zimbabwe National Chamber of Commerce CE Christopher Mugaga, Institute of Chartered Accountants of Zimbabwe technical manager Owen Mavengere and development economist Chenayimoyo Mutambasere.

Watch this exciting conversation, whose theme is ‘Monetary Policy —  A tool to solve economic problems’ on Heart and Soul Zim, Newsday and Zimbabwe Independent and Standard Facebook pages starting at 8am.

Below are excerpts from Mangudya’s policy statement:

Introduction and background

This Monetary Policy  Statement  (the  Statement)  comes  at  a  time  when the Government  has ably shown steadfast  commitment  to  sustaining  the economic  reform  momentum. Despite the difficulties caused by the Covid-19 pandemic, the economy is on the rebound.

The  close  co-ordination between fiscal  and  monetary authorities,  as  shown by the  sustained  fiscal  discipline  and  tight  monetary  conditions,  coupled  with the  smooth operation of  the  Foreign  Exchange  Auction  System,  have fostered  macroeconomic  stability.

Accordingly, inflationary pressures  in the  economy have  dissipated,  thus creating a  conducive  monetary  and  financial  environment  essential  to supporting  the  envisaged growth of  7,8%  in  2021  and a  robust  economic growth in the  medium  term. The  anticipated  recovery of  the  global  economy in 2021 and  the  spill-over effects  of  the  stimulus  packages  in the  developed countries  and Asia, together  with  the soon  to be  availed SDR  allocations  of  US$650  billion  into the  world economy  by the  International  Monetary Fund  (IMF),  are expected to  have  a positive trickle-down effect  on the  country’s  growth  trajectory. The  Bank  is  confident  that  the  current  stability of  inflation and  exchange rates, supported  by a  buoyant  external  sector  performance,  will  continue in the  outlook period.

The  external  sector  performance  has  also been  driven by strong recovery  of  the  global  economy,  projected  at  6%  this  year. The strong global economic recovery has resulted in a rally in international commodity prices, particularly of platinum, nickel and copper. Moreover,  tobacco  prices have  been firmer  at  an  average  price  of  US$2,92/kg  during the  just-ended marketing season compared  to the  previous  season  where the average  price was  US$2,55/kg.

On  account  of  the  strong  external  sector  performance,  foreign currency receipts  have remained buoyant, with  US$4,02 billion  having  been  received in the  first  half  of  the  year,  compared  to US$3,12  billion received  over  the same  period  in 2020,  representing  a  29,1%  increase  in  foreign currency supply  into the  economy.  Of  this  amount, diaspora  remittances  received through the  formal  system  amounted to  US$649  million, an impressive  73% increase from  US$374,6 million  received during the same period in 2020.

These  positive  economic  developments  are  key  in  sustaining  the  Foreign Exchange  Auction  System  which  has  had  a  significant  impact  on the  national economy  since  its  inception on  the  23rd  of  June  2020. Commendably, the Foreign Exchange  Auction  System  which  has  to date  disbursed  US$1,72 billion has  ensured  uninterrupted  financing of  importation  of  key  raw materials  and  equipment  for  the  productive  sectors  of  the  economy.

Capacity utilisation in the  manufacturing sector has, as a result, increased from 36% in 2019 to 47% in 2020 and is expected  to further increase to  above 61% in 2021. Against  this background, this Statement which is  issued  in terms  of  Section 46 of the  Reserve Bank of Zimbabwe Act [Chapter 22:15] reviews the monetary policy measures  pursued by the Bank since the last Statement  and outlines the new monetary policy measures to be followed by the Bank in the second half of the year.

Monetary policy measures

The obtaining  macro-economic stability, which is expected to continue to be reinforced by the positive outlook on inflation  and the balance of payments position,  requires  the Bank to stay the course and  maintain its current monetary policy position which has had positive impact on the  economy.

Accordingly, the  following  measures  will  anchor the Bank’s  monetary policy stance for  the  rest  of  this  year:

  • The  Bank’s  overnight  accommodation of  40%  and  the medium-term  lending rate for productive sector  of  30% will  be maintained in  the short  term, in order  to  control  money  supply and  curb speculative activities. The Bank shall continue to review the policy rates in response to the downward inflation trajectory.
  • The  5%  statutory reserve requirement  for  demand  and  call  deposits  and  the  2,5%  reserve requirement  for  time  deposits  will  be  maintained  in  the  second half  of the  year.  This  differential  reserve  requirement  system  remains  necessary as  an incentive structure  for  banks  to promote savings  in the economy.
  • Quarterly target  for the  growth of  reserve money  for  the  remaining  six months  of 2021 remains  at 20%. This  is necessary  to anchor inflation  expectations at  sustainable  levels through controlling money supply  and  to allow  for the  necessary accommodation for the growth of the economy.
  • A cap on the interest rate at which  banks can on-lend the proceeds  from  the  Medium-term  Lending  Facility is  also maintained  at 10% above  the  borrowing  rate  to  ensure  recovery of  the productive sectors  of  the  economy.
  • The Bank will  start  to set  aside  foreign exchange  resources  to build  the  country’s  foreign exchange  reserves  to  anchor  exchange  rate  stability and  to cope  with transitory  exchange  rate shocks  in the national  economy.
  • The Bank  has  put in place  the  following  measures  to deal  with  the  residual foreign exchange auction allotment  backlog:
  1. Utilisation of the existing letters  of  credit  facilities  for  the importation of  strategic  commodities  and  capital  goods  in order  to lessen  the demand on  the  Foreign  Exchange Auction  System;
  2. Supporting banks to promote  financial  intermediation  to leverage  on the  current  long foreign  exchange  position  of  around  US$1.7 billion in the  banking system;  and
  3. Working closely with Government to  ensure  that  some  of  the  foreign exchange  balances  in the  Exchequer  Account  are  utilised  to expunge the backlog.
  • The Bank  is  addressing the  gap  between the official  and parallel exchange  rates  through tightening money  supply,  expunging  the  foreign exchange  allotment  backlog,  increasing the  attractiveness  of  the  local currency  so that  the  local  currency  complements  rather  than  competes with the  USD,  discouraging rent-seeking  behaviour  and  promote.
  • The Bank is  satisfied  with the  achievements  of  the  Foreign Exchange  Auction System  which  have  had  a  significant  impact  on the  economy  over  the year  it  has  been  in operation.  The  Bank  is  thus  continuing with  the Foreign  Exchange  Auction  System  and  is  determined to  strengthen  the system  to  ensure  that  it  reflects  economic  and market  fundamentals  of supply and demand.

The  auction  system  is  open  to  everyone  for  legitimate  foreign exchange transactions  through  the  bidding  process. Bids  are  submitted  through banks  by  individuals  and  entities  that  require  foreign currency.  It  is  a transparent  system  and  the  Bank  is  only administrator  of  the  system  and does  not  manipulate  the  auction  system, neither  does  it  participate on the  foreign exchange  parallel  market.

The Bank shall  therefore  continue to  foster  compliance  and  enhance monitoring  of  the  Foreign Exchange  Auction System. As  a  public institution, the  Bank  shall  also maintain  its  stance  to enhance transparency and  accountability  in the  operation of  the  Foreign Exchange Auction System.

  • The  Bank is  enhancing financial inclusion  which  is  critical  for  inclusive growth  through the  development of  the  National  Financial  Inclusion Strategy  Phase  2  (NFIS  2)  for  20212025.  The NFIS  2  will  seek  to address  the  challenges  and gaps  noted  in the  NFIS 1,  with more  focus  on  usage,  digital  financial  services,  quality of  financial  services, fintech and product  innovation, financial  inclusion data disaggregation and sustainability.


The economy is rebounding on account of the stable macro-economic conditions.  Both the  external  and  real  sectors  of  the  economy are  expected to remain strong  in the  outlook period. We,  therefore,  need  to stay  the  course and consolidate  the  current  economic  policy measures  for  stability  and sustainable  growth of  the economy.

The expected positive growth of  the  world economy, supported by stimulus packages  in  the  developed  countries  and Asia  and  from  the  IMF  will  buttress Zimbabwe’s  economic  growth trajectory.  In  addition,  the  expected increase in commodity prices  on  account  of  increased global  demand  will  enhance the country’s  export  performance, notwithstanding  the expected rise  in global  inflation which  will  have  moderate  pass-through  effects  to  domestic inflation.

The  Government  has  put  in place  elaborate measures  to  deal with  the  Covid-19 pandemic  including  the vaccination programme,  which  is  one of  the best in Africa.  Thus  whilst  the economic outlook is  positive,  concerted  efforts  to continue mitigating  the negative effects  of  the  Covid-19 pandemic  on the economy remain paramount  to maintain the  current  positive economic trajectory.

Overall, the economy is on the right track. It is rebounding.   The  outlook is positive  on account  of  the  remarkable  hawkish  monetary  policy  stance being pursued  by  the  Bank,  Government’s  strong  fiscal  sustainability  and  the positive  global  financial  developments.

This  stable  and  positive macroeconomic  environment  points  to  the  need  for  the  Bank  to  continue with  its  current  monetary  policy  stance  to  support  the  robust  economic growth  of  at  least  7,8%  in 2021,  while  continuing to  reduce  annual  inflation to the desired  level  of  around 30%  by the end  of  December  2021. -JOHN PANONETSA MANGUDYA, RBZ GOVERNOR.

Recent Posts

Stories you will enjoy

Recommended reading