RBZ Deputy Governor hopes for stability

The RBZ Deputy Governor Dr Kupukile Mlambo says monetary policy introduced this year with the aim of removing various distortion in the economy, reduce inflation and preserve the value of the RTGS (ZWL). However, the slow start of the interbank market caused by various factors has led to the runway exchange rate. 

Addressing the CZI AGM last week, Dr Mlambo said that there were many factors affecting the foreign currency trading leading to unsustainable exchange rates. Once such factor he highlighted was the role of cartels and speculators.

While the management of economic situation through the monetary and fiscal policies have not gone according to plan, he still believes that the situation was back on track. Dr Mlambo highlighted that while year on year inflation was still high, the best indicator of stability was the month on month inflation and this has gone down significantly.

He said that the US$500 million being injected into the economy through the interbank will go a long way in bringing stability.

The deputy governor referred to what is known as the “the impossible trinity” or Trilemma economics, to explain why the MPS is struggling to work. This is a concept in international economics which states that it is impossible to have all three of the following at the same time; a fixed foreign exchange rate, free capital movement (absence of capital controls) and an independent monetary policy. This is a finding from empirical studies where governments that have tried to simultaneously pursue all three goals have failed.

He also explained that in any basic economy, exchange rates must be formalized and transparent, those responsible for the hikes and unpredictable rates which are horrendous must be acquitted. It was also stated that having goods and services being priced in bond, RTGS and USD is inefficient, confusing and is not a long-term solution to our conundrum. The deputy governor explained that this situation is unsustainable, we have a duty to the people of Zimbabwe, to commit price stability and fighting to keep inflation under control.

The deputy governor also stated that the MPS aimed at setting a robust market-based framework for determination of the exchange rate, that way facilitating financial sector stability, containing of inflationary pressures and building of confidence is paramount as objectives of the MPS. He explicitly stated that as we move forward the RBZ will continue to focus on money supply growth, which also supports the fiscal measures contained in the 2019 budget on macro-fiscal stabilization including inflation containment.

He stated that RBZ negotiated to draw down US$500 million Plus letters of credit to stabilize the Inter-Bank Market. He urged banks to be creative to help stabilize the rates. There is a mismatch between the US$ and the RTGS. The rate is not sustainable currently rated at 1:8 which is not doable. The need to deal with the exchange rate is critical because no business will survive.

He said that the US$285 billion deficit is far less than the previous period regarding the export-imports comparison. The issue of dynamic inconsistence problem is bad for Zimbabwe, he elucidated that institutions that guarantee confidence are required and RBZ to be a standalone institution and a statement from the Ministry of Finance that it will not borrow from RBZ brings in the positive side enhancing progress.

The deputy governor advised that that the road to recovery is not a straight path, there are sharp turns, bridges and obstacles on the way but it is these big decisions which will help put Zimbabwe’s economy firmly back on its feet.

© 2019 Confederation Of Zimbabwe Industries. All Rights Reserved.