CONCERNS have been raised over the new measures by the Reserve Bank of Zimbabwe (RBZ) this week, which analysts have said could prove to be counterproductive.
Economist Gift Mugano told businessdigest this week that liberalisation of the foreign exchange market by the Monetary Policy Committee, allowing banks to conduct foreign exchange transactions of up to US$1 000 was not only inconsiderate of mass production firms but would also lead to the swallowing up of the official auction system as banks will have a true market rate.
“If the banks are going to have a true market rate, we are going to have proper price discoveries where the rate will be a true reflection of the monetary supply and in my view this rate will be equal to the black market rate resulting in two rates being recognised, in turn spelling out the demise of the auction system,” he said.
This comes after the
revealed in a statement that the MPC had reiterated the need for the Bank to remain focused on inflation reduction and had placed measures in response to the resurging inflationary prices and foreign exchange parallel market activities.
Amongst the policies that were introduced was the liberalisation of the foreign exchange market.
Mugano said the US$1 000 limit was not enough for major investments, such as mining companies.
“That is too small. Imagine you have a mining company and you have got your 60% from the surrendary requirements and you are allowed to just liquidate US$1 000, what do you think that amount will do to mining the company,” he said.
He pointed out that this was not going to address the possible anomalies, which are emerging from the auction system where the bank rate is lower than the black market rate.
Mugano added that the interest rates hikes by the central bank were counter-productive as this will cripple the productive sector.
“The interest hikes which are from 60% to 80% in my view as much as the central bank is trying to curb speculative borrowing, which will result in people buying from the black market. I would think that this measure might be counterproductive. We must not forget that the productive sector has to borrow money to finance production,” he said.
Mugano said the major driver in the exchange rate crisis was not speculative borrowing but government’s huge funding of construction projects.
“They are using short term finances to fund construction of roads and dams. You don’t finance key infrastructures with short term finances. That is where the disaster is, you use long term finances by using bonds,” he said.
However, another economist, Victor Bhoroma said the central bank was making positive steps to discourage speculative borrowing in the market.
“The move to adjust interest rates from 60% to 80% is good as positive rates discourage speculative borrowing in the market thus managing artificial demand for the US dollar,” he said.
“The central bank is begrudgingly liberalising the forex market by allowing banks to match make buyers and sellers. It is a baby step in addressing the humongous problem affecting the economy.
“It would be ideal to have proper reforms and allow for a free market foreign exchange,” Bhoroma said.
He, however, pointed out that the US$1 000 was not going to have any significant impact in addressing the formal foreign forex challenges that are in the market.
“The US$1 000 will not have any significant impact because it is more like a drop in the ocean and it will not address the formal foreign currency challenges that are in the market and it will not also enable banks to realise maximum amounts of commission of foreign currency trade and it will not arrest any increase in the parallel market exchange rate,” Bhoroma said.