The Monetary Policy Committee held its inaugural meeting on the 28th and 29th of October at the RBZ Chambers with emphasis on tackling inflation, recent economic developments, exchange rates among other issues.
“In particular, the Committee focused its attention on the recent economic developments, inflation trends, cash challenges in the economy, exchange rate and foreign exchange inflows and outflows, as well as the interbank market and national payment issues.” RBZ Governor and Chairperson of the Monetary Policy Committee said at the event.
The committee noted the current national experiences as conducive for the implementation of the country’s stabilisation objectives as adopted from the Transitional Stabilisation framework.
“The Committee noted that key basic economic fundamentals remain sound, and in place for the country to meet its stabilization and development objectives. Thus, notwithstanding the projected contraction in Gross Domestic Product (GDP) growth by around 6.5% in 2019 on account of the twin climatic shocks, the devastating drought and cyclone Idai, the foreign exchange generation capacity of the economy is still sufficient to support a stable exchange rate” Mangudya said.
The committee also emphasised that the county’s potential growth rate as commendable of affairs had to be bolstered by other productivity enhancing fiscal processes including equal distribution of money.
“The Committee also noted that the country’s potential growth rate (which is what the economy can produce with its current capacity) is still strong and needs to be buttressed by appropriate structural policies to ensure sustainable growth.” The RBZ Governor said.
“In addition, the Committee noted that the unequal distribution of money supply, which is heavily skewed toward a few corporates is the main challenge within the economy as opposed to the general level of money supply. This is on the basis that the majority are struggling to afford basic commodities and banks are also constrained by their liquidity levels, while the productive sectors are short of liquidity.” The Governor also said.
To address these challenges, the committee emphasised the need to finance agriculture as productivity enhanced fiscal growth.
“To this end, the Committee agreed that measures will be put in place to direct this excess liquidity to the productive sectors, in particular towards the funding of the 2019-20 agricultural season, through the banking system.” The Governor also said.
The Committee noted the physical cash levels as below regional levels and there was need to redress this financial imbalance.
“The Committee noted that the level of physical cash in the economy is inadequate to meet transactional demand, considering that the current proportion of cash to broad money supply of 4% is low compared to regional and international levels of 10-15%. This low ratio has resulted in an undesirable cash premium which the Committee would like to see eliminated.” The Governor said.
“However, the Committee felt that there was a need to boost the domestic availability of cash for transactional purposes through a gradual increase in cash supply over the next six months. The Committee also noted the need to review upwards the cash withdrawal limits to ease the burden on the transacting public. This additional cash injection will be carried out through the non-inflationary exchange of RTGS money for physical cash.” The Governor also said.
The committee also noted the current exchange rates and recommended the measures that will minimise monetary shocks.
“The Committee noted that the current exchange rates may not reflect economic fundamentals based on the balance of payments position. In this regard, the Committee agreed to put in place measures that will minimise monetary shocks and enable the exchange rate to gravitate towards its equilibrium path.” The RBZ Governor said.
The Monetary Policy Committee is comprised of technocrats in the financial and economic sector and to RBZ management.