FULL THREAD: RBZ Monetary Policy Measures Not Enough: Economist
2 February 2023
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1/The RBZ presented its monetary policy statement (MPS). The RBZ reduced interest rate from 200% to 150% p.a; reduced domestic export retention from 20% to 15%; reduced export retention from 40% to 25%; etc. Although these measures are in the right direction, they aren’t enough

2/As a run up to the MPS, I submitted the following suggestions: reduction of interest rate from 200% to 80 – 100%; scrap 20% domestic export retention to promote deposits of USD; eliminate 40% export retention. In the MPS, RBZ acknowledge that +70% of transactions are in USD

3/It defies logic to maintain both domestic and export retentions when the economy has dollarised. The 15% new domestic export retention will not enough deposits of FX since firms will suffer exchange rate losses especially in the face of exchange rate disparities

4/ The 150% interest is too steep- this will continue to encourage firms to borrow in USDs at the expense of the ZWL, that is, reinforcing use of USD while at the same time creating a new problem of fake USD or artificial USD (RTGS) – this is taking us back to 2013 – 2018 period

5/ Going forward, in subsequent MPC meetings, I strongly advise the RBZ to use hard data to analyse the nexus between: – maintenance of 15% domestic export retention & USD deposits & the possibility of removing the 15% retention – 150% interest rate, inflation, dollarisation &

6/ implications of reducing it to 80 – 100%. – maintaining 25% export retention & export competitiveness -Most importantly, the RBZ has to come up with a clear road map of the de-dollarisation strategy. At the moment, the current measures are reinforcing full dollarization

7/ The Ministry of Finance, as recommended by the RBZ in today’s MPS, must reinforce value for money in all Govt procurement. I would like to also add that the Ministry of Finance must pay their service providers regularly & avoid huge once off payments which shock the market