By Moses Charedzera
The Reserve Bank of Zimbabwe has announced an increase in cash withdrawal limit for individuals to $ZWL 2000 from $ZWL 1000 with depositors now able to withdraw $ZWL 35 000 a week. This is contained in the monetary policy statement released by Reserve Bank Governor Dr John Mangudya today.
“This measure will enable the transacting public to continue conducting small transactions using cash, whilst large transactions are conducted through electronic banking.
“As previously advised, the Bank shall soon be introducing a ZW$50 banknote to augment the current stock of banknotes in circulation. The Bank reiterates that banknotes, new or old, do not cause inflation in an economy since they do not increase money supply,” said Dr Mangudya.
The central bank said the economy is poised for a 7.4 % growth despite covid -19 with inflation expected to be contained below 10 % by year end.
Other policy measures announced include changes in overnight accommodation rate from the current 35% to 40% per annum and the medium-term lending rate for the productive sector from 25% to 30% per annum.
Statutory reserves were increased from 2.5% to 5% for demand and/or call deposits and maintained at 2.5% for time deposits.
“The differentiation of statutory reserves by maturity is expected to incentivise banks to hold long-term liabilities or time deposits which will facilitate long-term lending in the medium-term,” said Dr Mangudya.
The central bank chief also announced they will maintain the conservative monetary targeting framework in 2021 which will be achieved by reducing the quarterly reserve money growth from the 25% quarterly target in 2020 to 22.5% per quarter in 2021.
He noted that the current stability in inflation and exchange rate needs to be safeguarded, maintained and sustained.
“The reserve money target of 22.5% is consistent with the targeted end of year inflation of below 10% and the projected 7.4% economic growth rate of the economy”, he said.
The Reserve Bank underscored the importance of maintaining and sustaining the auction system through the 40% export surrender requirement, 20% domestic foreign exchange sales proceeds surrender requirement and 15% foreign exchange contribution from the fiscus.
“Maintaining the foreign exchange auction system remains paramount in anchoring inflation and maintaining price and financial system stability.
“The Bank shall continue refining the foreign exchange auction system taking into account market fundamentals as well as closely monitoring the utilisation of funds from the foreign exchange auction system and the economy at large, “said the apex bank chief.
Measures taken by the Bank during the second half of 2020, that included adhering to conservative monetary targeting framework, strengthening mobile banking regulations and putting in place a foreign exchange auction system, were cited as critical in stabilising the economy from the ravages of inflation. These measures were underpinned by strong fiscal discipline, which eliminated government recourse to central bank financing.
The governor said the measures rescued the economy from an otherwise worse decline of 6.5% that had been projected for 2020 to a decline of 4.1%.
Due to a three-pronged strategy the bank said, the parallel exchange rate premium has reduced to a tolerable band of up to 20%, consistent with experiences in other countries adding the establishment of an appropriate market based exchange rate system has assisted in dampening pressures on inflation.
“An amount of US$795 million had been allotted as at 9 February 2021 since the introduction of the foreign exchange auction system. A significant proportion of the total amount allotted has been earmarked for strategic sectors for imports of essential goods, especially raw materials, equipment, pharmaceuticals, chemicals, fuel and electricity.
“To date, more than 70% of total foreign currency allotted has gone towards import of raw materials, machinery and equipment while other essential and strategic imports, including pharmaceuticals and chemicals, fuel and electricity have, taken around 11% of the total allotments,” said Dr Mangudya.
He expressed satisfaction with the control measures taken to tame inflation , which ended last year a few percentage points above forecast.
“The headline CPI month-on-month inflation rate ended the year at below 5% as desired by monetary policy, resulting in annual inflation closing the year 2020 at 348.6%, slightly above the forecasted 300%. The CPI month on-month inflation for January 2021, however, slightly increased to 5.4% from 4.2% in December 2020, which saw year-on-year inflation rising moderately to 362.6% in January 2021, from 348.6% in December 2020.
The increase in inflation in January 2021 largely reflected the adjustments in administrative levies and charges that include electricity, municipal charges, rates and health charges, some of which are traditionally effected at the beginning of the year,” he said.