Monetary Policy Statement Analysis




On the 20thof February 2019, the Reserve Bank of Zimbabwe unveiled its annual Monetary Policy Statement. The economy was slowly headed towards the Venezuela route and this statement needed to inject some much-needed life into it and redirect its fortunes. To some extent that took place but to a greater extent it seems to be another attempt at addressing symptoms and not root causes. A case of treating without curing.

Below we shall outline some of the measures taken by the RBZ and their corresponding effects for the ordinary man and woman.

Positives

The Establishment of an Interbank Forex Market
·      This means that it is no longer illegal to trade foreign currency and you won’t be facing 10 years in jail for it. You may simply visit your local bank and purchase the forex you need with your RTGS balance at the prevailing free market rate for the day. However, this is subject to you proving why you need the forex to the RBZ. We are likely to see the parallel market rates fall slightly due to this de-criminalization of the forex trade.

Local Nostro accounts now allow for Interbank Transfers
·      You may make and receive local transfers to other banks from your Nostro FCA account, just like what we already do the RTGS platform.

Negatives

RTGS is now a currency that trades against the USD.
·      Since RTGS balances are no longer USD (1:1 is no more), the value of RTGS balances has officially  depreciated by over 70%. If you deposited $1000 USD cash in the bank in 2016, it is now officially worth about $285 USD.

Fuel is still under the forex allocation system
·      Fuel queues are set to persist because the fuel market is still yet to be liberalised. Just like before the fuel price increase, it is still cheaper to buy fuel in bond/RTGS than in USD. Government is therefore still subsidising our fuel and this is unsustainable.

Exporters still under forex retention scheme
·      Exporters still have to surrender some of their forex earning to the Central bank (Tobacco farmers may only retain 30% of their forex proceeds while the remainder will be paid via RTGS). We are not sure whether this amount will be paid at the prevailing market rates or at a rate set by the RBZ. This may lead to reduced profitability for exporters such as miners and tobacco farmers.

The Central Bank has reneged on its 1:1 promise
·      It is going to be difficult to convince you to deposit your USD in the banks because public confidence has been eroded in the RBZ since it promised people that bond notes were equal to 1:1 in 2016. RBZ Governor Dr. John Magudya and Finance Minister Prof. Mthuli Ncube even claimed that Afreximbank had guaranteed this yet now they have made a U-turn and said that the Bond note is no longer equal to the USD. Trust is an important factor in banking and the RBZ has broken that trust one too many times.

The RBZ has the power to generate RTGS balances
·      The value of the RTGS can fall anytime because the RBZ can “print” RTGS whenever it feels like it thus causing inflation. It is advisable to treat RTGS with caution in the meantime and minimise your holdings of it if possible. You are (hopefully) safer with Nostro FCA money for now.

Conclusion: While the issue of legalising and liberalising forex trading is commendable, questions have been raised as to whether this will truly arrest our economic woes as there are still some significant barriers in place as set out above. Unlike the period of 2009-2016 where the RBZ had no ability to print money, these RTGS balances must be handled with caution because the Central Bank has the unfettered power to depreciate or appreciate them whenever they so wish.

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